Leading movie theater chain AMC Entertainment Holdings, Inc. (AMC) reported disappointing fiscal 2022 third-quarter results. The company’s results were impacted primarily by a soft industry-wide box office in the latter two-thirds of the third quarter. Moreover, analysts expect the company’s revenue and EPS to decline year-over-year in its about-to-be-reported fourth-quarter results.

Given its weak financials and the challenging market conditions, I don’t think this meme stock can regain investors’ attention in the months ahead. My evaluation of AMC in this piece explains why it could be risky to buy the stock even at the current low price level.

The company reported revenue of $968.40 million for the third quarter, up 26.9% year-over-year. Despite notching higher revenue compared to a year ago, the company reported another quarterly loss due to high operational costs. The company reported an operating loss of $114.90 million. Its adjusted EBITDA loss widened 138.9% year-over-year to $12.90 million.

Also, AMC’s net loss and net loss per share came in at $226.90 million and $0.22, respectively. During the third quarter, the company’s operating cash burn was $178.2 million.

Furthermore, there are increasing concerns about AMC’s hefty debt load, which it had amassed before the pandemic. In December 2022, the company announced a new $110 million capital raise and proposed a reverse stock split of AMC common shares at a 1-to-10 ratio. AMC devised these plans to raise more capital to pay down its debt. Also, AMC’s CEO Adam Aron asked the Board to freeze his pay for 2023.

While AMC was able to avert from the brink of bankruptcy in 2021 after millions of retail investors made it a meme stock, it struggled significantly to maintain momentum last year. Shares of AMC have plunged 34.3% over the past year to close the last trading session at $7.61. The stock is currently trading 77.8% below its 52-week high of $34.33, which it hit on March 29, 2022.

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

Poor Financials

AMC’s operating costs and expenses increased 19.3% year-over-year to $1.08 billion in the third quarter that ended September 30, 2022. Its operating loss stood at $114.90 million for the third quarter. The company’s adjusted EBITDA loss worsened by 138.9% from the prior-year period to $15.70 million. Also, AMC reported a net loss of $226.90 million and $0.22 per share, respectively.

In addition, AMC’s cash outflows from operating and investing activities were $223.60 million and $50.80 million, up 96.3% and 76.4% year-over-year. Its free cash flow increased 101.5% year-over-year to $278.10 million. As of September 31, 2022, the company’s cash and cash equivalents came in at $684.60 million, compared to $1.59 billion as of December 31, 2021.

Unfavorable Analyst Estimates

Analysts expect AMC’s revenue for the fourth quarter (ended December 2022) to come in at $977.66 million, indicating a decline of 16.6% year-over-year. The company’s loss per share for the same quarter is expected to widen 97% year-over-year to $0.22. Furthermore, analysts expect the company to report a loss per share of $1.12 and $0.49 for fiscal 2022 and 2023, respectively.

High Valuation

In terms of forward EV/Sales, AMC is currently trading at 3.45x, 74.8% higher than the industry average of 1.97x. Likewise, the stock’s forward EV/EBITDA multiple of 745.46 is 8,592.8% higher than the industry average of 8.58.

Poor Profitability

AMC’s trailing-12-month gross profit margin of 10.73% is 78.4% lower than the industry average of 49.63%. And its trailing-12-month EBITDA margin of 2.82% is 85.3% lower than the 19.21% industry average. Moreover, the stock’s trailing-12-month net income margin of negative 20.05% compares to the industry average of 3.38%.

Additionally, the stock’s trailing-12-month ROTC and ROTA of negative 2.06% and 8.91% compare to the industry averages of 3.93% and 1.77%, respectively.

POWR Ratings Reflect Bleak Prospects

AMC has an overall D rating, translating to a Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AMC has an F grade for Stability. The stock’s 24-month beta of 2.26 justifies the Stability grade. Also, it has a D grade for Quality, in sync with its lower-than-industry profitability.

In addition, the stock has a D grade for Value, consistent with its higher-than-industry valuation.

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

Beyond what I have stated above, we have also given AMC grades Sentiment, Growth, and Momentum. Get all AMC ratings here.

Bottom Line

Shares of AMC have declined more than 30% over the past year due to dampened investor sentiment amid mounting losses and decelerating business growth. For several past quarters, the company’s revenue has not been enough to outweigh its costs. AMC still holds a hefty debt load and has been burning cash.

The company’s near-term prospects look bleak, with its core business expected to witness slowing growth. Movie theaters have been facing broad competition from emerging sources of media consumption, including video streaming. Given its weak financials, unfavorable analyst estimates, low profitability, and high valuation, we think AMC could be best avoided despite its low price.

Stocks to Consider Instead of AMC Entertainment Holdings, Inc. (AMC)

The odds of AMC outperforming in the weeks and months ahead are greatly compromised. However, there are many industry peers with impressive POWR Ratings. Thus, consider these two entertainment stocks which are B-rated (Buy):

New York Times Company (NYT)

Comcast Corporation (CMCSA)

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AMC shares were unchanged in premarket trading Tuesday. Year-to-date, AMC has gained 91.40%, versus a 4.20% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

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