Cineplex operator AMC Entertainment (NYSE:AMC) is facing a high-stakes opportunity to right the ship. Amid big questions about its debt load, the company will reveal its full first-quarter earnings results on May 8. While a positive contextual framing could temporarily boost AMC stock, it continues to run against significant industry-wide headwinds.
Earlier this week, the movie theater chain spooked investors when it revealed that Q1 revenue will land at $951.4 million. In contrast, the company posted sales of $954.4 million in the year-ago quarter. Nevertheless, the context that AMC’s chief executive Adam Aron has consistently emphasized was the impact of the Hollywood writers and actors strikes from last year.
In his words, Aron is “ebullient about the upcoming film slate.” Further, he anticipates to “see an increasingly strong box office as the year progresses.” When AMC runs its earnings webcast — also on May 8 — management will have an opportunity to frame the discussion optimistically.
Will Positive Framing Boost AMC Stock?
Frankly speaking, the Wall Street machinery has a dour assessment of AMC stock. Per Barron’s Advisor, the company’s fundamentals are very poor, warning investors that its shares represent a purely speculative idea. Further, the sentiment is ranked at three out of 10, indicating a negative outlook.
However, since the meme-trading days, AMC stock has garnered an intense following among dedicated investors. So, an upside for the security can never be completely ruled out. What’s more, the bad news has already been baked in with the preliminary Q1 report. Once Aron provides the framing, AMC could shoot higher.
Perhaps most intriguingly, Fintel’s options flow data – which screens exclusively for big block transactions likely placed by institutional investors – reveals a recent surge in bought call options, many of them expiring following the Q1 disclosure. Calls give buyers the right (but not the obligation) to acquire the underlying security at the listed strike price.
Combined with a high short interest of 18.4%, AMC stock could bounce higher. It’s the sustainability factor, though, that plagues this enterprise.
Industry Woes Cloud the Narrative
While Aron has expressed optimism at the resumption of the Hollywood machinery, one of the main issues facing AMC stock is that the underlying industry has lost momentum.
In terms of top lifetime grosses, Box Office Mojo reveals that most of the top 20 films stemmed from the pre-Covid-19 era. The best-performing post-pandemic film was 2021’s Spider-Man: No Way Home. Notably, the wildly popular and much-anticipated film Top Gun: Maverick — released in 2022 — only came in at number five.
Only five of the top 20 grossing films of all time were released after Covid-19. Interestingly, the original Avatar — released in 2009 — occupies the number four slot, while its 2022 sequel, Avatar: The Way of Water, landed at number seven.
Unless the slate of upcoming films is projected to be groundbreaking, it’s doubtful that Hollywood alone can help AMC stock.
Why It Matters
Given the severe challenges at the box office, AMC likely must implement radical changes to its business model. However, doing so will probably cost money, and that’s a huge problem, given the company’s debt load. And as the events of last year demonstrated, investors are largely skeptical about efforts to raise cash through dilutive actions.
On the date of publication, Josh Enomoto 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.
