AMC (NYSE: AMC) stock has been on quite the roller-coaster ride. From the dizzying heights of 2021 to the stomach-churning plunge of the past year, shareholders in the cinema chain that became the darling of meme stock investors have experienced more drama than a summer blockbuster.
What happened?
Let’s set the scene: the shares have tumbled a jaw-dropping 85% over the past year. The company that once commanded a market cap larger than many established blue-chip players now sits at a relatively modest $2bn valuation.
The company’s story is one of survival against the odds. When the pandemic shuttered cinemas worldwide, many thought it was curtains. But then came the meme stock frenzy, a plot twist worthy of any movie on the big screen. Retail investors, many armed with stimulus checks, and a penchant for nostalgia, piled into AMC stock, sending it to astronomical heights.
However, as with many sequels, the follow-up performance has been less than stellar. The company’s fundamentals tell a sobering tale: negative shareholders’ equity, high volatility, and no profitability in sight for the next three years.
A recovery in sight?
However, I feel there’s still a glimmer of hope in this gloomy narrative. Revenue is showing signs of life, with $4.81bn in the last year, a decent 11% rise. The big question is: can they turn this revenue into profit in the long term?
No discussion here would be complete without mentioning two co-stars: debt and share dilution. With a huge debt-to-equity ratio of -223.7%, the business is carrying a tremendously heavy debt load. And let’s not forget the substantial dilution shareholders have faced, with the number of shares outstanding growing by a whopping 132% in the last year alone.
Yet, CEO Adam Aron continues to find new ways to keep investors engaged. From accepting cryptocurrency, to investing in gold mines and branching into popcorn sales, management have shown that nothing is off the table.
Never a dull watch
So, what’s the next act? The company is trading at a 43.9% discount to a discounted cash flow (DCF) estimate of its fair value, which might tempt value investors. But remember, just because something’s on sale doesn’t mean it’s a bargain. Management needs to prove it can translate revenue into profit, and manage that debt load before it becomes a feel-good comeback story.
The cinema industry itself faces enormous challenges. Streaming services are the big bad wolf at the door, and the company needs to convince movie-goers that the big screen experience is worth leaving the comfort of their sofas.
So for me, the story surrounding AMC stock is far from over. It could be a phoenix rising from the ashes or a cautionary tale of market exuberance. Either way, it promises to be a gripping outcome. But I want my money to be growing, not entertaining me. For that reason, I’ll be avoiding this one for now.
This post was originally published on Motley Fool
