One of 2021’s unexpected trends has involved retail investors propping up stocks lacking in the fundamentals department. Struggling AMC (AMC) has been a prime beneficiary, as the retail crowd has pushed the share price to unlikely heights. Even after getting slashed since January’s peak, the stock’s year-to-date performance shows a 375% gain.
As AMC has just about stayed afloat during the pandemic, much has been made of the disconnect between the reality and the elevated share price. However, with Covid-19 on the backfoot, in the West at least, vaccines getting doled out across the globe, and AMC’s domestic theaters now open, there is the prospect of a movie theater renaissance.
As such, Barrington analyst James Goss is encouraged by current trends.
“Making consumers comfortable as a result of an improving health situation has, in other markets, prompted a swift return to pre-pandemic trends in moviegoing,” Goss said. “We feel a return to the $11 billion level or a monthly pace of box office supportive of that annual level will not be immediate, a function of studios’ strategic efforts for other business lines plus viewer comfort and interest in returning to theatres, but can still be supportive of rebounding cash flow generation.”
Over the past year, AMC has been burning cash in its efforts to keep the theater lights on. That said, the debt burden has been reduced and the company has freed up desperately needed liquidity via negotiations with landlords, vendors and creditors.
AMC saw out Q1 with $813 million of cash in the coffers and through a new ATM equity issuance program, has since raised more than $170 million. Since last year, the total equity capital raised has amounted to more than $1 billion. And while 1H21 has “remained challenging,” Goss notes that management is looking at Q3 as a “transitional period.” By Q4, a “steady flow of new product,” should go a long way toward restoring some normalcy.
So, promising in the long run. For now, though, Goss still thinks investing in AMC carries a high degree of risk.
“AMC has taken numerous actions to improve its financial position. However, significant uncertainty remains for the company due to the high degree of leverage in its business model,” the analyst summed up.
Accordingly, Goss stays on the sidelines with a Market Perform (i.e. Hold) rating, without suggesting a price target. (To watch Goss’ track record, click here)
Two other analysts join Goss on the fence, and hence, AMC has a Hold consensus rating, based on 3 Holds, 2 Sells and 1 Buy. The general view is that the shares are overvalued; going by the $6.38 average price target, the stock will shed ~37% of its worth over the coming months. (See AMC stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.