AMC Entertainment Holdings (AMC) stock has experienced a wild ride over the past couple of years. Nevertheless, its underlying business is slowly picking up from the pandemic-induced weakness. AMC stock has a negative year-to-date return of around -50%, but the company is showing signs of a robust recovery from the pandemic.
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Its recent results have breathed new life into the stock, and an incredible film slate ahead promises more fireworks. Thus, the combination of growth prospects, improved fundamentals, and higher revenue makes AMC more than just a meme stock. We are bullish on AMC stock.
AMC’s Fundamentals are Recovering
AMC’s fundamentals haven’t completely recovered from the effects of COVID-19. However, the company is getting close to hitting pre-pandemic levels. AMC reported its best first quarter in the last two years, with revenue increasing five-fold. In the first quarter of 2022, AMC’s revenue hit 65% of pre-pandemic levels, signaling that the pandemic is in the rear-view mirror.
The company reported revenue of more than $785 million in the first quarter of 2022. Top-line growth exceeded Wall Street’s expectations of $743 million.
In the first quarter of 2022, AMC celebrated a total attendance of more than 39 million, which is an almost five-fold improvement from the same quarter last year.
AMC also enjoyed $252.5 million in revenue from its Food and Beverage business. The amount indicates a five-fold increase as more movies hit the market.
Concerning the company’s balance sheet, it suffered due to a negative free cash flow figure of $330 million for the quarter. However, this issue shouldn’t hinder AMC from embarking on recovery bolstered by its strong liquidity position of $1.376 billion.
The Road Ahead: “Value-Creating Investments”
AMC’s management believes that bringing the company back to pre-pandemic levels isn’t their end goal. Therefore, during the earnings call held in May 2022, CEO Adam Aron provided details on AMC’s initiatives.
According to him, AMC’s slogan is “Recovery, Agility, and Transformation.” Hence, the company can do more than just recover from the pit dug by COVID-19.
The company aims to employ cash to support operations, repay loans, and invest in growth prospects. Its investment in Hycroft Mining (HYMC) is an example of the transformation that AMC is planning to do. The CEO also added that he is constantly searching for “value-creating investments that will benefit the company in the long run.”
Along with its investment in Hycroft Mining, AMC also plans to dive deeper into the retail popcorn market. In late 2021, the company announced its intention to produce branded popcorn by this year.
Moreover, AMC is also pivoting towards NFT initiatives, with several projects in progress. These initiatives could help AMC become the next big thing in a few years.
AMC: Not Diluting Shareholders Anymore
Equity raises are always a delicate topic, especially for stocks with massive retail ownership. Share issues mean greater dilution, and dilution impedes the power of individual shareholders. However, the importance of issuing shares is crucial to businesses like AMC because the extra cash helps them execute their long-term strategies.
Usually, announcements concerning share issues result in sell-offs, but AMC has experienced the opposite. In January 2021, the share price soared after AMC issued more shares. The same happened in June 2021. This could be beneficial for AMC, but the company paused share issues since then to reward its existing shareholders.
Wall Street’s Take
Turning to Wall Street, AMC stock maintains a Moderate Sell consensus rating. Out of five total analyst ratings, zero Buys, two Holds, and three Sell ratings were assigned over the past three months.
The average AMC stock price target is $6, implying 55.65% downside potential. Analyst price targets range from a low of $1 per share to a high of $11 per share.
Takeaway – Don’t Walk Out on AMC Stock
You could dread AMC for its cash burn rate, but it’s tough to bet against AMC’s long-term outlook. The company is on a post-COVID recovery journey, and it seems that AMC is headed in the right direction. Sure, the free cash flow isn’t too attractive, but AMC’s business fundamentals and revenue growth are solid.
Moreover, the company’s decision to stop share dilution is a cherry on top for worrisome investors. Things are getting back to normal as COVID-19 cases decline and more people get out of their homes to watch movies. Therefore, it is possibly time to start believing in AMC again.
