Is AMC a Ticket for Success?

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Fourteen months ago, I gave a blunt assessment of movie theater operator AMC Entertainment Holdings (NYSE: AMC).

I strongly warned investors against buying AMC shares and told preexisting shareholders to sell their positions.

It was a prescient call.

AMC shares were then trading for more than $60.

Today, those same shares are running under $10 – a decline of more than 80%!

Chart: AMC's Share Price

There was nothing overly brilliant about my call. AMC was perhaps the most overvalued stock that I have ever come across.

Anyone paying attention to the fundamentals would have similarly warned you.

And guess what?

Despite the more than 80% drop in AMC shares, I still wouldn’t touch the stock with a 10-foot pole.

First, the long-term debt on AMC’s balance sheet has exploded higher in recent years, and the company currently has over $5 billion in long-term debt outstanding.

Chart: AMC's Long-Term Debt Outstanding (Quarterly)

AMC had too much debt going into the pandemic and then added to it.

But the debt isn’t the biggest problem.

The issue is that this company does not generate nearly enough earnings or cash flow to handle that debt.

Actually, AMC doesn’t generate any earnings or cash flow.

That’s insane when you consider that this company has burned through more than $2 billion in cash in the last 30 months.

A lot of that lost cash can be chalked up to COVID-19 and closed theaters, but the reality is that this business was in major trouble even before COVID-19. From 2017 to 2019, AMC generated negative $526 million in net income.

Meanwhile, deep-pocketed streaming providers, like The Walt Disney Company (NYSE: DIS), Apple (Nasdaq: AAPL), Amazon (Nasdaq: AMZN) and Netflix (Nasdaq: NFLX), have completely changed the dynamics of the cinema industry in recent years.

These are not the kind of financial behemoths you want coming into your industry and shaking up the status quo.

The craziest thing is that AMC’s enterprise value of more than $9 billion is still almost double the $5 billion valuation that the company had prior to the pandemic.

Chart: AMC's Enterprise Value

That doesn’t make any sense. The pandemic forced the company to load up on even more debt since then, and the business is now incurring even bigger losses as it loses to powerful new competitors.

For the Value Meter, AMC is an easy call.

I love going to the movies, but I do not love this incredibly risky stock.

Despite the 80% decline in price, AMC gets a valuation rating of “Extremely Overvalued.”

Valuation Rating: Extremely Overvalued

The Value Meter

If you have a stock whose valuation you’d like me to grade, leave the ticker in the comments section.

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Good investing,


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