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Is AMC Trading In Line With Its Business Fundamentals?

Trading around $12, does AMC stock finally reflect the company's actual value?

Since January 2021, the value of AMC Entertainment  (AMC) - Get AMC Entertainment Holdings Inc. Class A Report stock has been based on retail investor sentiment, rather than the company's business fundamentals. But now AMC's business is showing signs of recovery from COVID. The company is also investing in future growth initiatives.

But Wall Street remains skeptical about AMC – even though shares are down over 50% this year alone.

What's the deal?

Figure 1: Is AMC Trading In Line With Its Business Fundamentals?

Figure 1: Is AMC Trading In Line With Its Business Fundamentals?

(Read more from Wall Street Memes: GameStop Stock: Everything That Happened During GME’s 2022 Shareholders Meeting)

AMC Is Getting Back on Its Feet

AMC's business was brutally punished by the COVID pandemic. At the height of the lockdowns, the company’s revenues were down as much as 98% year-over-year, putting AMC in a delicate survival situation.

However, the impending collapse of AMC's business as a "victim of short selling" by institutional firms motivated retail investors. Using the Reddit social media platform, they stirred up enough "meme mania" to raise AMC's share price through a series of short squeezes.

With the help of retail investors, AMC's share price reached stratospheric levels. This gave the company enough cash to keep its business alive.

Today, AMC is still in a recovery stage. It has not yet reached its pre-pandemic levels. However, the movie theater chain has shown business improvements in every recent quarter. Last quarter, AMC revenues reached 65% of pre-pandemic levels.

This has allowed AMC's management to go even further than just recovering the business. They're now transforming it into a growth enterprise.

According to the company's CEO, Adam Aron, AMC's future cash management plans consist of:

  1. Supporting operations
  2. Repaying high-interest loans and deferred rent
  3. Investing in growth

Aron has defended the idea that going back to pre-pandemic levels is not enough, because Wall Street was critical of business even before the pandemic.

Aron wants to transform AMC and actively pursue "value-creating investments." The purchase of a stake in Hycroft Mining  (HYMC) - Get Hycroft Mining Holding Corporation Report is one example of this.

Pointing to a Multi-Year Recovery?

Today, AMC is down nearly 80% from its historical peak, at share-price levels close to those seen in 2019 and 2018. However, analysts still think it's overvalued, based on its business fundamentals.

For example, Macquarie analyst Chad Benyon, who covers the movie theater and entertainment sector, sees AMC pointing to a multi-year recovery from a balance sheet and fundamentals perspective. But he believes that, at the moment, AMC's fair price should be $6.

Benyon points to May box office numbers that lagged pre-pandemic levels by 30%, as well as revenues down 35% compared to 2019, AMC's high cash burn, the rise of streaming, etc., as justification for his unchanged 2022 and 2023 outlooks for AMC.

AMC's Plans to Reach Ideal Valuation

Since 2021, this is probably the least that AMC has traded like a meme. The current share price around $12 is no longer exotic for AMC – despite the experts still questioning its value.

AMC stock appears to no longer have a negative beta. On the contrary, AMC's current beta of 1.50 demonstrates that it trades even more in line with the broader market indexes.

During the last earnings call, it was revealed that AMC's current motto is "recovery, agility, and transformation." With AMC playing on the offensive once again, one of the company's strategies – per CEO Adam Aron – is to use the support of AMC's loyal shareholders to help turn around the company's fortune.

AMC's management is expert at raising money. AMC has already raised over half a billion dollars in cash from equity issuance due to the overvaluation of its share price backed by retail investors.

At first glance, AMC has been following its new motto. But it remains to be seen if AMC will succeed in the long run to transform its business into something bigger so that its “meme valuation” finally aligns with its business fundamentals.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)