AMC Entertainment Holdings, Inc. (AMC) operates in the theatrical exhibition business. The company owns, operates, or has interests in theaters. It functions across several theaters and screens in the United States.

Speculative options trading is resurging among individual investors as meme stocks are once again on the rise. Although volumes are still down, investors’ risk appetites seem to be returning.

However, many market watchers have been skeptical of the rallies, as past rebounds in meme stocks have faded, particularly a run in the first half of the year that was followed by lows in broader markets.

AMC’s stock has declined 47.2% over the past year and 29.1% year-to-date. However, it is up 16.6% over the past month. The meme stock lost 9.7% intraday to close its last trading session at $19.29.

Here are the factors that could affect AMC’s performance in the near term:

Stretched Valuations

In terms of its forward EV/Sales, AMC is trading at 4.49x, 114.8% higher than the industry average of 2.09x. The stock’s forward EV/EBITDA multiple of 75.29 is 755% higher than the industry average of 8.81. In terms of its forward Price/Sales, the stock is trading at 2.30x, 69.3% higher than the industry average of 1.36x.

Negative Profit Margins

AMC’s trailing-12-month gross profit margin and EBITDA margin of 10.75% and 2.40% are 78.7% and 87.1% lower than their respective industry averages of 50.52% and 18.63%. The stock’s trailing-12-month net income margin, ROTC, and ROA of a negative 21.03%, 2.16%, and 8.33% are significantly lower than their respective industry averages of 5.51%, 3.56%, and 2.38%.

Analysts Expect Downsides

Of the four Wall Street analysts rating AMC, two have rated it Sell, and the two have rated it Hold. The 12-month median price target of $7.50 indicates a 61.1% potential downside. The price targets range from a high of $11.00 to a low of $4.00.

POWR Ratings Reflect A Bleak Outlook

AMC’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

AMC has a Stability grade of F in sync with its five-year monthly beta of 1.67.

AMC has a D grade for Value and Sentiment, consistent with its high valuations and Wall Street analysts’ unfavorable expectations.

In the 7-stock Entertainment – Movies/Studios industry, it is ranked last. The industry is rated F.

Click here to see the additional POWR Ratings for AMC (Growth, Momentum, and Quality).

View all the top stocks in the Entertainment – Movies/Studios industry here.

Bottom Line

The resurgence in retail trading has given AMC’s stock a bounce. However, the sustainability of its gains remains under question. With Wall Street analysts expecting potential downsides in the stock, I think it might be best to avoid AMC now.

AMC shares were trading at $17.92 per share on Friday afternoon, down $1.37 (-7.10%). Year-to-date, AMC has declined -34.12%, versus a -10.42% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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