The performance of the world’s largest movie theater chain, AMC Entertainment Holdings, Inc., (AMC) was disappointing even before the coronavirus pandemic, as evidenced by  the stock’s 37.3% decline over the past three years. However, at least in-part as the result of a recent short squeeze wave, AMC hit its all-time high of $20.36 on January 27, 2021, but is now trading 51.6% below its 52-week high.

The company reported disappointing financial results for its fourth quarter (ended December 31, 2020) on March 10, 2021. Moreover, AMC is also facing intense competition from other direct-to-consumer streaming service providers, such as HBO Max and Peacock, for whom demand climbed significantly amid the pandemic.

So, it’s uncertain if AMC can return to its former operational strength and stock price highs even after the pandemic subsides.

Here’s what I think could shape AMC’s performance in the coming months:

AMC Caught Up in Short Squeeze Frenzy

A  short squeeze wave  began  with GameStop Corporation (GME) in January when  millennial traders targeted AMC as a ‘meme’ stock. As a result, the stock has been  volatile over the past few months. The company has been trying to recover from its pandemic woes by re-opening some of its  movie theatres and taking health precautions. But so far, its audience turnout is quite low and there are as yet no developments to point to justify the stock’s high price.

Weak Recent Financials

AMC’s top line declined 88.8% year-over-year to $162.50 million for the fourth quarter ended December 31, 2020. The number of theatres operated by the company during  the quarter was 503, down 49.9% year-over-year. The number of screens it operated also decreased 45.2% year-over-year to 6,048.

The company’s operating loss was $969.60 million for the quarter, and its net loss was $945.80 million. Its non-GAAP loss per share was  $3.15. AMC also missed  consensus EPS estimates in each of the trailing four quarters.

Unfavorable Analyst Estimates

Analysts expect AMC’s EPS to remain negative for fiscal 2021 and fiscal 2022. In fact, its EPS is expected to decline at a rate of 217% per annum over the next five years. The company’s revenue is also expected to decrease 78.3% for the current quarter ending March 31, 2021.

Wall Street analysts expect the stock to hit $2.29 in the near term, which indicates a potential decline of 75.1%.

POWR Ratings Reflect Bleak Prospects

AMC has an overall rating of F, which equates to Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by 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 Growth. This is consistent with analysts’ estimates that its revenue and EPS will decline in the near- to midterm.

The stock also has an F grade  for Sentiment, which is  consistent with  unfavorable analysts’ sentiment.

In addition to these grades , we have also graded AMC for Value, Momentum, Stability and Quality. Get all of AMC’s ratings here.

AMC is ranked #8 of 9 stocks in the F-rated Entertainment – Movies/Studios industry.

Bottom Line

Thanks to a  short squeeze wave, AMC soared to its all-time high on January 27. However, given the stock’s weak financials and an uncertain industry outlook the stock’s high price seems unjustified. Many  consumers might prefer to watch movies at home rather than at theatres even after the pandemic subsides due to streaming services’  numerous offerings and the convenience of home viewing. As a result, we think it wise to avoid AMC now.

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AMC shares were trading at $10.41 per share on Thursday morning, up $0.56 (+5.69%). Year-to-date, AMC has gained 391.04%, versus a 4.98% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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