Risk/Reward Rating: Negative
AMC Entertainment has been on a downward trajectory for some time. The business collapse during COVID lockdowns was more of a punctuation mark than a one-off negative event. Peak earnings in recent times have been in the $110 million per year range as was seen in 2015, 2016, and again in 2018. In between these years, the company has generated losses.
At a current equity valuation of $27 billion, the stock of the company is being valued at 246x peak earnings of recent years. Unfortunately, the fundamentals of the company have been deteriorating well before this.
The downward trend took hold coincident with the onset and popularity of streaming video platforms such as Netflix, Amazon, and Hulu.
AMC Entertainment 5-year weekly chart
Making matters worse, is the acknowledgement by content owners and creators that going directly to their customers is the most economic pathway forward. Disney punctuated this realization when it rolled out its streaming service and gained immediate popularity. It is likely that new release movies will increasingly go live on streaming services coincident with them rolling out in physical theaters to maximize margins. This will further degrade the value proposition of movie theater companies such as AMC.
AMC stock has been gripped by the meme craze of late as the stock has lost all touch with the underlying business value. Online message boards are filled with falsehoods and outlandish conspiracies in an attempt to drive retail traders into the shares. The conspiracies range from short squeezes that don’t exist to dark pool manipulation and are only limited by the perpetrator’s imagination.
AMC has been selling massive amounts of new stock into the craze in an attempt to stave off failure due to its high debt levels and negative equity book value. The negative book value was -$2.3 billion at the end of Q1 2021 and the corporate debt load stood at $5.4 billion. New stock investors are thus transferring their wealth to the creditors of AMC as their money will be used to pay off the bond holders.
Technical resistance: The $60 area has served as the rejection zone for the recent speculative fever.
Technical support: The $15 area was the last sideways basing zone and may offer support.
AMC Entertainment 6-month daily chart
Price as of report date 6-25-21: $54
AMC Entertainment Investor Relations Website: AMC Entertainment Investor Relations