Last year saw shifting consumer sentiment regarding entertainment spending as the economic environment worsened. As recession concerns linger amid the still-high inflation and anticipated continuation of rate hikes, consumers are projected to cut back spending on recreation and entertainment.
So, fundamentally weak stocks AMC Entertainment Holdings, Inc. (AMC), Cinemark Holdings, Inc. (CNK), and National CineMedia, Inc. (NCMI) might be best avoided or sold short.
Technological developments and rising demand for digital entertainment are expected to boost the sector’s growth in the long term. OTT (over-the-top) media services have emerged as one of the industry’s most significant disruptors. However, inflation has also triggered decreased spending on entertainment subscriptions for streaming platforms.
The consumer price index rose by 6% from a year earlier. While inflation is slowly but steadily declining, Silicon Valley Bank and Signature Bank’s failures are raising fears of a “hard landing.”
Michael Furtschegger, global head of entertainment at AGCS, said, “Our entertainment clients are feeling the effects of inflation, with increased production and live-event costs.”
AMC Entertainment Holdings, Inc. (AMC)
AMC engages in the theatrical exhibition business. The company owns, operates, and has interests in theaters in the United States and Europe.
AMC’s forward EV/Sales of 2.59x is 39.2% higher than the industry average of 1.86x. Its forward EV/EBITDA of 40.92x is 396.5% higher than the industry average of 8.24x.
AMC’s trailing-12-month gross profit margin of 7.43% is 85% lower than the industry average of 49.63%. Its trailing-12-month ROTA of negative 10.66% is lower than the industry average of 1.32%.
AMC’s revenues decreased 15.4% year-over-year to $990.90 million in the fourth quarter that ended December 31, 2022. The company’s adjusted EBITDA was $14.50 million compared to $159.20 million for the fourth quarter of 2021. The company’s adjusted net loss and adjusted net loss per share widened by 167.3% and 133.3% year-over-year to $152.90 million and $0.14, respectively.
AMC’s EPS is expected to decline by 217% per annum for the next five years. It missed EPS estimates in three of four trailing quarters. Over the past six months, the stock has lost 53.2% to close the last trading session at $4.64.
AMC’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
AMC has an F grade for Stability and a D for Quality. Within the F-rated Entertainment-Movies/Studios industry, AMC is ranked last among six stocks. To see additional POWR Ratings of AMC for Growth, Value, Sentiment, and Momentum, click here.
Cinemark Holdings, Inc. (CNK)
CNK is primarily engaged in providing motion picture exhibitions. It operates through two segments: U.S. markets and international markets.
CNK’s forward Price/Book of 8.73x is 407% higher than the industry average of 1.72x. Its forward EV/EBITDA of 10.23x is 24.1% higher than the industry average of 8.24x.
CNK’s trailing-12-month ROCE of negative 123.25% is lower than the industry average of 3.48%. Its trailing-12-month ROTA of negative 5.63% is lower than the industry average of 1.32%.
For the fourth quarter that ended December 31, 2022, CNK’s revenues came in at $599.70 million, down 10% year-over-year. Also, its net loss came in at $98.90 million, compared to a net income of $6.40 million in the year-ago period. Its loss per share came in at $0.82, compared to an EPS of $0.05 in the previous period.
CNK’s EPS is expected to come in at negative $0.34 for the quarter ending March 2023. It missed EPS estimates in all four trailing quarters. CNK’s shares have lost 16.3% over the past year to close the last trading session at $12.82.
It’s no surprise that CNK has an overall D rating, equating to a Sell in our POWR Ratings system. It has an F grade for Stability and a D for Sentiment. It is ranked #4 in the same industry.
Beyond what is stated above, we’ve also rated CNK for Growth, Value, Momentum, and Quality. Get all CNK ratings here.
National CineMedia, Inc. (NCMI)
NCMI, through its subsidiary, National CineMedia, LLC, operates cinema advertising network in North America.
NCMI’s forward EV/Sales of 5x is 168.9% higher than the industry average of 1.86x. Its forward EV/EBITDA of 25.95x is 214.9% higher than the industry average of 8.24x.
NCMI’s trailing-12-month EBIT margin of negative 3.08% is lower than the industry average of 9.12%. Its trailing-12-month ROTA of negative 3.38% is lower than the industry average of 1.32%.
NCMI’s operating expenses came in at $58.7 million for the third quarter that ended September 29, 2022, up 16.5% year-over-year. Also, its current asset came in at $137.30 million, compared to $158.40 million in December 30, 2021. Its current liabilities came in at $290.20 million, compared to $69.8 million in the previous period.
The EPS is expected to decline 6.33% per annum for the next five years. It missed EPS estimates in three out of four trailing quarters. The stock has lost 92.8% over the past year to close the last trading session at $0.18.
NCMI’s overall D rating equates to a Sell in our POWR Ratings system.
It has an F for Stability and Sentiment. It is ranked #5 in the same industry. To see additional POWR Ratings for Growth, Value, Momentum, and Quality for NCMI, click here.
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AMC shares fell $0.03 (-0.65%) in premarket trading Wednesday. Year-to-date, AMC has gained 14.00%, versus a 2.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions. More...
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