AMC Stock: What Can Investors Expect?

As far as meme stocks go, AMC Entertainment (AMC) remains one of the go-to battlefield stocks for retail investors looking to stick it to the hedge funds. Indeed, as one of the original meme stocks, AMC has been perhaps the most-discussed stock on highly popular social media discussion platforms like Twitter (TWTR) and Reddit this year.

This interest has translated into some rather impressive stock price performance for AMC this year. A struggling theater chain, AMC had been beaten down by short-sellers through the beginning of 2021. This stock started the year at around $2 per share.

However, the combination of heavy call option buying and massive retail investor momentum took shares of AMC stock as high as $72.62 this year. The parabolic upside move, which saw AMC stock become a near-35-bagger in just a few months, certainly caught many investors by surprise.

What’s interesting about this move is that AMC stock has stayed significantly elevated throughout the year, refusing to test sub-$10 per share since spiking in May. This indicates the market remains bullish on AMC’s prospects of yet another run. Currently, retail investors appear to have just as much patience as short-sellers, with this stock in a longer-term stalemate than many initially thought.

Currently, I’m bearish on AMC’s prospects from here. However, I’m certainly one of the few – this is a stock that’s inspired millions of investors to get in the game. Let’s dive into what investors may want to consider with this meme stock right now. (See Analysts’ Top Stocks on TipRanks)

Fundamentals Remain Lacking for Long-Term Investors

One of the key fundamental factors that may drive investor interest in AMC stock is the reopening thesis. Indeed, coming out of the pandemic, it’s certainly been expected that consumer demand would drive this stock. There’s a considerable amount of pent-up demand that investors hoped would translate into solid AMC earnings.

Unfortunately, that has not exactly been the case.

Yes, AMC has recently posted decent earnings on a year-over-year basis. The company brought in $763 million in revenues this past quarter, which was good for revenue growth of 539% on a year-over-year basis. Additionally, this number beat Wall Street’s expectations of only $708 million by a wide margin.

However, following this earnings report, AMC stock dropped dramatically.

Why?

Well, AMC’s revenue is still approximately at half its 2019 run rate ($1.45 billion). Given the strong slate of movies and expectations that AMC could return to 2019-era attendance levels, these numbers were disappointing to those expecting a larger beat.

Additionally, the company posted an astronomical loss of $224 million, or $0.44 per share. Yes, this loss is still the lowest since the pandemic began. However, it’s approximately quadruple the loss AMC saw during this same quarter in 2019.

Thus, it appears the market is now using 2019 as the baseline to assess AMC stock. Pandemic restrictions are all but over in most key markets for this theater chain. Accordingly, investors don’t seem to like the fact that it’s taking AMC this long to get back on its feet.

During the earnings call, CEO Adam Aron noted that attendance levels are up sharply, with 40 million patrons visiting AMC theaters this past quarter. Additionally, it appears that Q4 numbers “could” be much better than expected. The use of qualifiers to discuss the company’s prospective results has some concerned.

Additionally, AMC does have approximately $1.8 billion in liquidity, including cash reserves and credit lines. Much of this liquidity has come from various capital raises this year and last. Given the company’s current cash burn rate of around $1 billion per year, it’s expected that AMC can weather this storm for another year.

However, pandemic-era rent deferrals are coming off in most major markets, providing the potential for a few quarters of higher cash burn on the horizon. Investors appear to be factoring this in.

AMC Stock: A Crypto Play?

Given the incredible interest surrounding AMC stock from retail investors, it’s clear CEO Adam Aron is focused on giving its investor base what they’re looking for. In a recent Twitter poll, AMC announced it’s going to accept various cryptocurrencies as payment for tickets as well as concessions.

High-profile cryptocurrencies such as Bitcoin, Ethereum, Litecoin, and Bitcoin Cash will be accepted as payment. Additionally, Dogecoin, Shiba Inu, and other meme tokens are being added, as the company looks to make its theater chain truly customer-facing.

Those bullish on the future of crypto as a ubiquitous payments method have cheered this take. Others remain skeptical concerning the actual impact this move will have on AMC’s revenues and bottom-line performance.

One might argue that a moviegoer may decide to pay for tickets in crypto just to see how it all works. There’s certainly a degree of novelty to this idea. Perhaps the company will see some sort of short-term spike as a result of this move.

However, those consumers who choose to pay via crypto or cash/credit may be the same. Thinking that this move will somehow invite millions of patrons who would otherwise have not visited a theater if crypto wasn’t accepted as payment seems to be ludicrous. Accordingly, many believe AMC’s adoption of crypto is nothing more than a cheap party trick right now.

Wall Street’s Take

Turning to Wall Street, AMC has a Moderate Sell consensus rating, based on two Holds and three Sells assigned in the past three months. The average AMC price target of $8.17 implies 77.8% downside potential.

Analyst price targets range from a high of $16 per share to a low of $1.00 per share. 

Bottom Line

AMC is a company with a loyal retail investor following. Thus far this year, retail investors have been proven right. In that regard, this has been one of the most incredible stocks to watch.

However, this is also a stock trading at levels that are completely detached from its fundamentals. The theater chain has a long way to go to regain a strong financial footing. This company is burning through cash quickly and will likely need additional capital injections in the future.

Accordingly, AMC appears to provide a risk-reward that simply isn’t worth it for the conservative, long-term investor. There happen to be plenty of other pandemic reopening stocks to pick right now.

Additionally, concerns surrounding the new COVID-19 variant aren’t making it any easier for AMC, as the government battles what could be another wave of the pandemic.

Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.