Curtain Call: Is it Time to Exit the AMC Stock Theater?

Stocks to sell

AMC Entertainment (NYSE:AMC) stock has had a wilde ride these last few years.

As you probably recall, global movie-theater chain became a target of meme stock traders in 2021. The glory days of meme stocks may be in the rear-view mirror, however.

Now, AMC stock is in a terrible downtrend and the best rating it deserves in 2023 is a “D.”

Sure, there will be blockbuster films from time to time. Will Barbie and Taylor Swift be enough to save AMC Entertainment from its financial problems, though? The odds aren’t great, so exercise caution if you’re thinking about investing in AMC Entertainment now.

AMC Stock Traders: Listen to the CEO

AMC Entertainment CEO Adam Aron is a vocal cheerleader for the company. He has embraced his position as leader of AMC Entertainment fans, known as “Apes.”

Yet, even the chief executive has disclosed warnings about AMC Entertainment. In particular, Aron admitted, “Moviegoing in 2023 still will be well below 2019 pre-COVID levels” despite the success of the Barbie movie.

In addition, Aron acknowledged that the “writers and actors strikes create uncertainty ahead. And cash is very tight.” How tight? As of March 31, AMC Entertainment’s cash position was down to $495.6 million, as compared to $631.5 million at the same time in 2022.

Plus, in an open letter posted on social media, Aron warned about what could happen if AMC Entertainment could not raise equity capital quickly

“[T]he risk materially increases of AMC conceivably running out of cash in 2024 or 2025, or of AMC being unable to satisfactorily refinance and stretch out the maturity of some of our debt (which is required of us beginning as early as 2024),” he wrote.

AMC Raises Capital, but at What Cost?

Those weren’t the only warnings issued by AMC Entertainment, by the way. For instance, the company has stated that buying AMC stock is “highly speculative and involves risk.”

AMC Entertainment declared that its shareholders should be “prepared to incur the risk of losing all or a substantial portion of your investment.” Are you really willing to take on risk of that magnitude?

Granted, AMC Entertainment did shore up its balance sheet somewhat when the company recently raised approximately $325.5 million. In order to achieve this, though, AMC Entertainment printed and sold 40 million stock shares.

Even the loyal “Apes” and meme stock traders must admit that this is an imperfect way to raise capital. Surely, current AMC Entertainment investors weren’t thrilled about the prospect of share value dilution.

Remember, Benchmark analyst Mike Hickey noted that “AMC is expected to report a full-year 2023 loss of $386 million.”

Is it realistic to think that this will be AMC Entertainment’s last large-scale share sale?

Not likely. Given the company’s challenging financial position, it’s likely that AMC Entertainment will engage in further dilutive activities sooner or later.

AMC Stock: This Movie Could Have a Bad Ending

AMC Entertainment has acknowledged that the company is in a tough position, financially speaking. Printing and selling shares is a short-term fix, but it’s not a perfect solution.

Ultimately, AMC Entertainment will need more than Barbie, Taylor Swift and share sales to shore up its capital position for the long term. Therefore, AMC stock get a “D” grade and isn’t a highly recommended investment for 2023.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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