How To Invest In AMC And Really Make Long-Term Money
AMC, the nation’s largest movie theater chain and darling of the meme stock afficionados, has all the hallmarks of a disaster movie: a monster (the pandemic), questionable actions from main characters (the company’s ownership) and skanky fundamentals (too much debt, share-price dilution).
That’s not to mention that fast-growing streaming services are eating into its customer base like acid, and the Delta virus variant could squelch the former multiplex goers’ thoughts about returning.
In any disaster movie, the beleaguered good guys also find the monster’s vulnerability. In The War of the Worlds, H.G. Wells’ classic Martian-invasion book later made into several flicks, the aliens’ weakness is a lack of immunity to our planet’s germs. For AMC and other such troubled companies like GameStop
Today, that translates into making meme stocks, which stodgy old hedge funds have shorted, into a cause célèbre for Gen Z investors. The young amateur stock jockeys have pumped up these names, sticking it to those smug Wall Street tycoons, who get caught in short squeezes.
Due to the Robinhood crowd’s support, AMC has seen its stock price triple thus far in 2021. That’s despite losing $4.5 billion last year ($1.42 per share) as pandemic-spooked film audiences stayed home, and also logging a $500 million loss in 2021’s first quarter. Second quarter earnings, slated for Aug. 9, are expected to show a narrower loss, just 91 cent per share, per the Zach’s Consensus. In the January-March quarter, attendance had fallen almost 90%, versus the year-earlier period.
The popularity of AMC’s stock has been a boon for the chain, even though the outfit diluted shares a bunch via new stock issued. The company has floated common stock offerings, raising a total of $1.25 billion—cash that it desperately needs in a nasty time like now. Analysts project that the company will be in red ink for at least three more years.
Meanwhile, management, led by CEO Adam Aron, also whittled down net debt to $4.6 billion as of March 31, from $5.4 billion. Plus, it completed a debt-for-stock exchange offer, and extended maturities on $1.7 billion in bonds until 2026. As a result, S&P Global Ratings last month raised AMC’s rating to CCC+ from CCC-. Granted, this is still deep in junk bond territory, but represents a forward step.
The larger question is: Does AMC have a future, or will it dwindle to little or nothing? Think of all the corporate powerhouses of yore, like Eastman Kodak
Maybe AMC can avoid that fate. For the near future, AMC likely will consolidate its hold on what remains of the cinema-going public. Many small operations tanked over the past year. Regal Entertainment and Cinemark, its two biggest U.S. competitors, are in a weaker condition, and AMC could end up the last chain standing.
After that, AMC has to bet that people eventually will want to return to the wide-screen auditoriums that, indeed, offer a much richer visual experience than even the largest TVs at home. Going out to the movies has always been a communal undertaking, and like live sports, which are showing a decent comeback, could reclaim their patrons. True, stadium-viewed sporting events offer the extra dramatic element of rooting for the home team. Once Hollywood starts putting out better movies—its pandemic entries have been kind of lame (Tenet, anyone?)—sitting in the dark to watch a blockbuster will have better appeal.
If you agree with that thesis, then when is the right time to purchase AMC shares? One answer is to buy on the dips. In fact, we’re in a dip now: AMC has fallen almost 30% since mid-June, partly owing to the onset of the Delta variant. And odds are that Robinhood gang will tire pf AMC.
At that point, is buying the shares a mad-money play? Sure. Still, look at other pandemic-stricken stocks that are rising anew, like oil companies. That could be enough for a Hollywood ending.