CEO Adam Aron has made AMC Theaters (NYSE:AMC) stock the most controversial stock you can own. Since the COVID pandemic began in early 2020, he has fought to keep the movie theater chain afloat. He has sold stock, sold bonds, and innovated on many levels. He has kept the doors open.
But the struggle hasn’t been worth it to investors. AMC has lost 88% of its value over the last five years. It was trading at about $5.30 per share on July 15.
The Truth About AMC
Strip away the hype and AMC is in the business of renting buildings to show films. It’s where Hollywood moguls like William Fox, Carl Laemmle, and Adolf Zukor got their start, over a century ago.
But that business ceased being a road to riches in 1948, when the case of U.S. vs. Paramount separated the theaters from the studios producing their product. Without control over the product, a movie theater is real estate.
Before COVID, AMC was already a marginal business. The pandemic made it a disaster. About 90% of revenue disappeared, for at least a while. It’s still well below pre-pandemic levels.
Aron has spent the last five years dancing and doing magic tricks. He pushed AMC’s position as a meme stock. He created preferred “APE” shares when he hit share limits. The preferred shares were eventually turned into common stock.
Aron began selling NFTs and offered a credit card. He sold popcorn for popping at home. His most effective move came last year when he took in Taylor Swift’s Eras Tour, dealing directly with the entertainer rather than going through studios.
While rival Cineworld went bankrupt AMC is still standing. I have to admire the effort.
What About Now?
I may be the wrong person to ask about AMC, because I’ve been down on the stock since before the pandemic. I was never big on the meme stock frenzy.
I’m not alone. Our Louis Navellier is predicting disaster. Thomas Niel also sees an increased risk of bankruptcy. Chris MacDonald thinks the stock could be headed to zero.
The problem remains AMC’s debt. AMC reported $4.5 billion of long term debt at the end of the first quarter. That’s a full year of revenue. Aron has been reducing the debt for three years, but total debt at the end of March was $9 billion, according to Companies Market Cap.
Despite this, there are still buyers. The company has opened new talks to reduce its debt.
A recent Barron’s article insists there is a narrow path forward. AMC still has 23% of the theater market, and more IMAX screens than any other operator. Hits like Inside Out 2 and Despicable Me 4 have the turnstiles turning again.
If the box office gets to just 88% of where it was in 2019, AMC could have $800 million in Earnings Before Income Taxes, Depreciation, and Amortization. That’s a number often used when evaluating companies for sale.
The Bottom Line on AMC Stock
Death can come quickly, or it can come slowly, although it comes for us all.
As our Josh Enomoto says, you can still take a flyer on AMC. Meme traders could get back in, giving you a chance to make a quick profit.
Hollywood cannot afford for AMC to go under. The best option for the long term might be one I suggested back in 2018.
Back then, I said a cloud company like Netflix (NASDAQ:NFLX) buy it to showcase its movies and merchandise, but that would take some serious money. The “enterprise value” of AMC, including debt, is over $10 billion for a company that might bring in $5 billion this year.
If you like owning movie theater chains, I suggest you look at Cinemark Holdings (NYSE:CNK). They earned a small profit in the March quarter. The stock is up 52% in 2024.
On the date of publication, Dana Blankenhorn did not hold (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.