There are a handful of securities guaranteed to spark heated debates in any room full of investors. AMC Entertainment Holdings (AMC 9.37%) is one of them.
The multiplex operator has been in a wild rush since the beginning of last year. Are you bullish? Are you bearish? Let’s take a look at three reasons why you might want to buy stock of the world’s largest exhibitor and at least one strong argument for selling the meme’s stock.
3 reasons to buy AMC
Let’s start with the obvious bullish feather in the AMC hat. People are finally starting to return to the cinema. Basic‘S (FOR 0.46%) Top Gun: Nonconformist broke national box office records for Memorial Day weekend. they have been few and far between. Throughout 2020 and 2021, studios hesitated to release their successful candidates because the pandemic made it too difficult to attract crowds to theaters. But Hollywood is all going this summer.
You’ll see a sequential drop at the box office this weekend, but it might not be a big drop given the rave reviews that the Top Gun sequel is receiving from critics and audiences. And the break won’t last beyond a weekend. Wait Jurassic world: domination to boost ticket sales next weekend. Light year — the Toy Story spinoff – will attract young families to the local multiplex the following weekend. That Light year the opening weekend should be huge, as it will feature three blockbusters, all in theaters for three weeks or less.
The second reason to buy AMC stock now is that the company is gaining market share. There are many reasons why it is even more of a force in its industry than it was before the closure due to the pandemic. Its emergence as a meme action has helped – 4 million retail investors are out there actively talking about the brand. It also only helps that AMC kept its theaters open when rival Regal closed a second time in late 2020 after the latest James Bond film hit theaters. There is no time to die, was bumped. Even smaller gamers who lack AMC’s financial resources have faltered, and AMC is slowly and selectively adding some of those rival movie houses to its portfolio.
The third reason to buy this title now is that per capita spending is strong among viewers arriving at its multiplexes. Apparently, the journey from the living room sofa to the cinema is also making many people hungry for the hot popcorn, drinks and snacks sold at the kiosk. AMC also made its fortune during the box office break by increasing mobile orders across the chain. Consolidated food and beverage revenues per supporter are 40% higher than in 2019. This is a big deal as the concession stand is the main profit center for exhibitors. Most of the ticket sales revenue for a new release goes to movie studios, but those high-margin food and drink sales belong exclusively to AMC.
A reason to sell
The main reason why the red flag when it comes to AMC as an investment is its dilution. Through secondary share offerings, management has quintupled the number of shares outstanding since the start of the pandemic and most of those shares were sold by the company during the darkest times of the COVID-19 pandemic in early 2020. at much lower prices than those prevalent today.
This dilution stings in two ways. The not so obvious way is that it interferes with short squeeze. There are approximately 109 million AMC Entertainment shares reported as short sold at this time. If that had been the case three years ago, when AMC had 103.8 million fully diluted shares outstanding, its short interest would have been more than 100%. With 515.9 million shares out now, short-term interest amounts to around 21%. It is still high, but there is a lot of float to go through in a close.
The obvious reason that massive dilution hurts shareholders is that each stock now represents a fifth of what it did before the pandemic. Let’s go deeper into the math. The $ 785.7 million in revenue that AMC generated during the first three months of this year is 35% lower than the $ 1.2 billion served in the first quarter of 2019. However, divide the revenue figures by fully diluted share counts and you’ll see earnings per share jumped from $ 11.56 in the first quarter of 2019 to $ 1.52 in the first quarter of 2022, a drop of 87%. You will see the same problem emerge in the price-to-earnings ratio when AMC finally returns profitable.
Are Bullish Catalysts Enough to Overcome Valuation Concerns Related to Dilution? The long-term outlook is going to be tough, but I think there will be too many positive headlines about the film industry’s turnaround this summer to keep this exhibitor’s shares low for long.