AMC Entertainment Holdings, Inc. (AMC - Get Rating) is a well-known theatrical exhibition company. It owns, operates, or has interests in theaters in the United States and Europe.

Furthermore, AMC disclosed last month that it has entered into an equity distribution agreement under which it may sell up to 425 million AMC preferred equity units (APEs), raising about $1.7 billion. According to AMC, the proceeds will be used “primarily to repay, refinance, redeem or repurchase the company’s existing indebtedness.”

However, this may impact investor confidence because such equity units may eventually be converted to common shares, resulting in substantial dilution for existing shareholders.

In addition, Odeon Finco Plc, a unit of AMC, announced Wednesday that it would issue $400 million in senior secured five-year bonds in a private offering. The transaction proceeds with cash on hand will be utilized to repay term debts.

Shares of AMC have slumped 84.2% over the past year and 42.8% over the past month, closing its last trading session at $5.85. Furthermore, its shares are currently trading 87.3% below their 52-week high of $45.95, which it hit on November 08, 2021.

Here’s what could shape AMC’s performance in the near term:

Inadequate Financials

AMC’s revenue grew 162.3% year-over-year to $1.17 billion in the second quarter ended June 30, 2022. However, its operating costs and expenses rose 59.5% from the prior-year quarter to $1.18 billion. The company’s operating loss came in at $16.10 million, while its net loss amounted to $121.60 million.

Furthermore, its cash and cash equivalents came in at $965.20 million, compared to $1.59 billion as of December 31, 2022.

Poor Earnings Estimates

Analysts expect its EPS to decline 217% per annum over the next five years. Also, its EPS is expected to remain negative in the current and next year. In addition, AMC failed to surpass the consensus EPS estimates in two of the trailing four quarters.

Poor Profitability

AMC’s trailing-12-month asset turnover ratio of 0.37% is 24.9% lower than its industry average of 0.49%. Also, its trailing-12-month ROC, net income margin, and ROA are negative 2.2%, 21%, and 8.4%, respectively. Moreover, its gross profit margin of 10.8% is 78.7% lower than the industry average of 50.5%.

Consensus Rating and Price Target Indicate Potential Downside

Of the five Wall Street analysts that rated AMC, three rated it Sell, and two rated it Hold. The 12-month median price target of $4.37 indicates a 25.3% potential downside. The price targets range from a low of $0.50 to a high of $7.50.

POWR Ratings Reflect Bleak Outlook

AMC has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. AMC has an F grade for Stability and a D for Sentiment. The stock’s beta of 1.90 justifies the Stability grade. In addition, analyst ratings and price targets are in sync with the Sentiment grade.

Of the five stocks in the F-rated Entertainment – Movies/Studios industry, AMC is ranked last.

Beyond what I’ve stated above, you can view AMC ratings for Growth, Momentum, Quality, and Value here.

Bottom Line

AMC’s shares have plummeted 62.5% over the past three months and are currently trading below their 50-day and 200-day moving averages of $11.91 and 15.48, respectively, indicating a downtrend. Furthermore, given AMC’s weak financials and negative profit margins, we think it could be wise to avoid the stock now.

AMC shares rose $0.07 (+1.16%) in after-hours trading Thursday. Year-to-date, AMC has declined -77.79%, versus a -22.06% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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