Movies are starting to come back to theaters, and that’s great news for theater chain AMC Entertainment (AMC). With movies actually available to watch once more, viewers are at least hesitantly starting to make their way back. “Spider-Man: No Way Home” demonstrated the potential of blockbuster returns once more with its opening weekend.
Despite this, AMC isn’t looking all that good. I’m bearish on AMC, but it’s going to be something you’ll want to watch for an opportunity.
The past year for AMC stock demonstrates that this is one of the biggest “meme stocks” around. It kicked off the year with a big spike, increasing in value nearly ten-fold in January. The company lost most of those gains and leveled off around the $7-$12 range for most of the next few months.
Late May proved the explosive catalyst for AMC, sending it from around $12 to over $60 in a little over a week. AMC struggled valiantly to hold those gains for most of June.
July, however, saw the company slide to threaten the $30 per share mark. Reversals and recoveries followed for most of the rest of the year. Today, the company sits at about $23, well off its lows but far from its highs.
The company has had some ups and downs lately as well. The company announced just weeks ago that it was planning to refinance its debt load. Said debt load was substantial; reports pin it at about $5.43 billion in long-term debt.
Word out of the latest Federal Reserve meeting, meanwhile, suggested that rate hikes were potentially coming. That was a point that likely had to come eventually after years of minimal rates. It also came at a bad time for a company that was looking to refinance billions in debt.
A Comeback Play Still in Play?
After the pandemic shutdowns, it was clear that AMC’s return to normal was going to take some time. Worse yet, the return to normal was sporadic and often politically motivated. States that had less connection to then-president Donald Trump re-opened much less rapidly than those closer to him. This left AMC with a spotty recovery at best, and even now, it’s struggling a bit under the weight of vaccine mandates in some places.
A stock that saw a lot of its gains not on the strength of its fundamentals but rather on the assessments of a social media community isn’t exactly the best investment. Sure, if you catch those upward waves, you’ll make plenty of money short term.
Those who had AMC stock back when it was $2 a share in January 2021 could have made a killing when it shot up around 30-fold in May. That gain was all Reddit, though, so calling it would have been difficult, to say the least.
AMC suffers from two key problems hitting it at the same time: the growth of streaming and the curse of studio release schedules. Theaters have long had a problem dealing with the growth of home theater. It’s been a thorn in their collective side for years.
However, it’s never been much more than a thorn because theaters had two key advantages. Those advantages were the release schedule and the “theater experience.” The theater experience is tough to explain; it’s a series of intangible factors that contribute to how people feel about seeing movies in a theater.
The release schedule is much easier to explain; it’s when studios release movies. Originally, the release schedule favored the theater; a movie would release and not go to home video for months afterward. That release window has been shrinking to where, in some cases, movies are available to stream the same day they’re in theaters.
Throw in the fact that AMC’s dividend history shows a dividend that declined into nothingness after March 2020, and the theater chain has several major problems to face. It’s facing some of them, certainly, but even these efforts may not be enough.
Wall Street’s Take
Turning to Wall Street, AMC has a Moderate Sell consensus rating. That’s based on two Holds and two Sells assigned in the past three months. The average AMC Entertainment price target of $8.17 implies 64% downside potential.
Analyst price targets range from a low of $1 per share to a high of $16 per share.
Concluding Views
It was hoped, back in 2020’s waning hours, that the theater would come back once COVID-19 restrictions finally died the death they deserved. That’s proving less accurate than most would like. However, we know that the theater is poised for a comeback. Just check out any list of 2022 releases, and you’ll see a slew of familiar names ready to hit.
However, for AMC, these benefits won’t hit right away, and they’ll be spread out over the year besides. The stock is trading well above even its highest price targets, fueled by social media speculators.
The fundamentals are hurting this company. Its debt load is concerning. All these reasons add up together to create what looks like a bad idea today. However, watch for a more reasonable pullback in price to give you an opportunity to buy. The theater may not be dead just yet.
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Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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