AMC Entertainment (NYSE:AMC) stock has faced plenty of financial challenges in this post-pandemic world and took proactive measures. Via raising capital, AMC has bought itself some time to survive. However, its long-term outlook remains uncertain due to industry struggles, including a recent writers’ strike affecting movie releases. It’s a situation to monitor.
AMC tried hard to avoid restructuring, but but now investors have bigger worries on their plate. The theater chain’s ability to avoid bankruptcy is uncertain if the market does not meet its capital requirements. Successful films don’t guarantee a miraculous recovery in Q4. CEO Adam Aron’s skills are impressive, but insufficient to save the company.
Reasons to Be Bullish on AMC Stock
It’s not all negative news for AMC, which is expected to report $1.23 billion in revenue and a loss of 27 cents per share, an improvement from the $1.94 loss and $961 million revenue in Q3 2022. The company’s upcoming earnings will be key to watch, and if there’s a beat, it’s possible this stock could move higher from here.
That said, while the company’s movie business recovered, it’s still below the 2019 level of over $5 billion, considering inflation. Taylor Swift’s concert movie had a successful opening weekend, but it fell short of the $150 million forecast.
I’m going to be paying close attention to the company’s cash flow numbers and its operating margins. Those will tell the story better than any adjusted numbers will as to the direction the company is headed.
Importantly, investors will also want to take a look at AMC’s balance sheet. L:ast quarter, AMC’s net debt stood at $4.5 billion. In August, Aron cautioned about liquidity challenges, rising $325 million by selling stock in October. If this trend continues, dilution or a higher debt load could be the nail in the coffin for this company.
Other Concerns from Analysts
While certain movies, like Taylor Swift’s concert film, boosted AMC’s revenue, it didn’t trigger the moonshot investors hoped for. AMC still faces a challenging path to manage its significant debt load.
Handler, while expressing some positivity toward AMC, voiced concern about its financials. He mentioned AMC’s cash burn and expected further share issuances to ensure liquidity, which could dilute existing shares.
In my opinion, AMC’s management has eroded shareholder value through excessive dilution and actions that don’t benefit common stockholders. Thus, I recommend selling AMC, irrespective of short-term gains, due to its substantial debt and profitability challenges. While I could be mistaken, I advise retail investors to steer clear of new investments in AMC.
Q3 Report on November 8
AMC Entertainment scheduled Q3 financial results for November 8, 2023. Analysts project a loss of 44 cents per share, on $1.23 billion in revenue (marking a 27% annual growth). While better, these figures still lag pre-pandemic levels, though progress is evident.
AMC’s Q3 revenue is expected to show substantial growth, possibly reaching pre-pandemic levels, due to a 40% increase in the domestic box office. This positive outlook could act as a catalyst for AMC’s shares.
Now’s Not the Time to Gamble on AMC stock
I’m aware of AMC’s appeal to some investors, but its business outlook appears bleak. While investors make their own decisions, I advise caution.
The AMC rally is waning, and fundamentals are becoming crucial. For those focused on long-term wealth, avoiding AMC seems prudent. Time will tell, but I maintain a bearish stance on the meme giant.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
