AMC Entertainment (AMC) has had quite a roller coaster ride in 2021. Overall, shares are still up more than 900% from the company’s opening print of $2.20 to start the year. However, they are down by more than 70% from when the stock peaked in the first week of June at $72.

The selling has intensified over the last month as the stock is down nearly 50% over that timeframe. The main catalyst is rising short-term rates as the Fed pivots to grappling inflation with the market expecting an acceleration in the taper and rate hike timetable. This has caused weakness in ‘meme stocks’ across the board as froth gets squeezed out of the market. 

Despite the volatility in the stock price, there’s been little change in terms of analysts’ forecasts for earnings and revenue in 2022. Currently, the consensus seems to be that AMC will lose $0.71 per share in 2022 which would follow a loss of $2.72 per share this year. Both figures haven’t changed much over the past 6 months. 

While AMC is certainly benefitting from the reopening of theaters, it still faces the same long-term challenges that led the stock to underperform prior to the pandemic. In fact, Wall Street analysts are in agreement that the stock should be avoided even after its massive decline. 

Here is a roundup of what they have been saying about AMC:

MKM Partners

Last month, Eric Handler of MKM Partners reiterated a Sell rating and a $1.00 per share price. He acknowledged some “improving trends” for the company in terms of better cost control and improving box office figures. However, this isn’t enough to overcome the “irrational” valuation that was a result of the social-media-driven short squeeze.

AMC has taken on considerable amounts of debt which is resulting in quarterly interest payments of $90 million in addition to diluting shares. The company’s current valuation doesn’t seem to take this debt and dilution into account. Further, the longer-term challenges to the company have yet to be resolved and are even more acute in some cases.

Barrington

Following AMC’s third-quarter earnings report, Barrington’s James Goss reiterated a Hold rating in the stock. As of now, Barrington doesn’t have a price target for AMC.

Notably, many analysts pulled coverage on the stock or have chosen not to issue price targets due to the stock’s extreme volatility and disconnect from fundamentals. Overall, Barrington had a Buy rating on AMC until March 2020, when it was moved to a Hold which it has reiterated since then.

Wedbush

Wedbush’s Alicia Reese reiterated a Sell rating on AMC in early November and placed a price target of $7.50 on the stock. Since this report, AMC is down 42%. Based on Wedbush’s price target, the stock has 70% more downside.

Wedbush initiated coverage on AMC in May 2021 and initially placed a Hold on the stock. It maintained this rating until the downgrade in November. 

B.Riley Financial

Eric Wold of B.Riley Financial maintained a Hold rating and set a price target of $16 on AMC in early November. This implies 34% downside from current price levels, although AMC is already down 46% from Wold’s bearish note on the stock. 

In Q4, Wold expects the company to post a loss of $0.71 per share which is slightly worse than its loss of $0.44 per share in Q3. As Wold notes, a challenge for the company is the lack of paths to profitability especially as the company wasn’t profitable even prior to the pandemic. 

POWR Ratings

The POWR Ratings are in agreement with Wall Street’s bearish tone on AMC. The stock is diluted, loaded with debt, and more expensive than it was before the pandemic. Further, nothing about the world has changed that would indicate a return to moviegoing habits of previous decades.

In fact, many people upgraded their home viewing experience during the pandemic which further reduces demand for theaters. Thus, it’s not surprising that AMC has poor scores for categories like Value, Quality, and Stability.

Overall, AMC is rated an F which translates to a Strong Sell. F-rated stocks have an average performance of -19.41%. For more information on AMC’s POWR Ratings, click here. 

Conclusion

AMC will go down with Gamestop (GME) in history as one of the most infamous short squeezes. However, the brutal reality is that the company’s earnings power has remained stagnant and even possibly decayed, while the valuation is nearly 1,000% higher. 

Now, it seems like reality is setting in for the stock with rising short-term rates causing its valuation to deflate. Thus, traders shouldn’t be surprised if the stock returns to its pre-pandemic levels under $10 in 2022. 

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AMC shares were trading at $24.80 per share on Thursday morning, up $0.14 (+0.57%). Year-to-date, AMC has gained 1,069.81%, versus a 27.10% rise in the benchmark S&P 500 index during the same period.

About the Author: Jaimini Desai

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...

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