In this piece, we used TipRanks’ Comparison Tool to check out two movie theater stocks — CNK and AMC — to see which stock has the best potential. Regarding upside potential from analyst price targets, CNK looks the best, but let’s look into each stock and the theatre industry further.
Don't Miss our Black Friday Offers:
- Unlock your investing potential with TipRanks Premium - Now At 40% OFF!
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
Well before the COVID-19 crisis capsized the global economy, movie theater stocks were courting trouble. With streaming services like Netflix (NASDAQ: NFLX) diving headfirst into the broader film and television arena, consumers suddenly found themselves with a more convenient and cheaper mechanism for entertainment. Add in the disruption of the pandemic – leading to a temporary shutdown of non-essential businesses – and the box office incurred an unprecedented catastrophe.
Still, the gradual return to normal has clearly benefited movie theater stocks. For the better part of two years, consumers found themselves under quarantine or otherwise restricted from normal activities. With mitigation protocols fading, though, many people rushed out into the real world, eager to reclaim said activities. One such social endeavor, of course, involved watching a blockbuster on the big screen.
High-profile and much-anticipated films – particularly the record-shattering Top Gun: Maverick – brought audiences back to the box office. Although movie theater stocks responded to the implications of increased traffic, one glaring headwind remained: the cineplex business depends on Hollywood’s willingness to spend big on major blockbusters.
In other words, content diversity is now one of the biggest – if not the biggest – challenge facing movie theater stocks.
In early August, I wrote, “Back in 2000, the top 10 grossing films at the domestic box office featured a wide range of genres. From action movies to comedies to even a biopic of American activist Erin Brockovich, the consumer ecosystem at the time facilitated content diversity. Since people were willing to pay for art, Hollywood studios gave moviegoers exactly what they wanted.”
“Fast forward to 2019, and the situation changed dramatically. Here, the top 10 grossing films mostly featured science fiction or comic-book-related films. Stated differently, if Hollywood wants to compete in the modern entertainment arena, it must pump out costly summer blockbusters.”
While the solution seems simple, it’s also not. Production studios must gamble that their investments will be worth it. Otherwise, entire organizations can go belly up. Given this trying circumstance, which one of the major movie theater stocks will weather the storm the best?
AMC Entertainment (NYSE: AMC)
From a bird’s-eye-perspective, AMC Entertainment seemingly enjoys top-dog status among movie theater stocks. It’s not so much that the company is fundamentally sound. The cineplex operator business features significant challenges and also suffers from a dependency problem. In other words, companies in the segment don’t fully control their fate.
However, it would be foolish not to mention that AMC features a certain pizazz that’s missing from other movie theater stocks. Namely, AMC has attracted an army of meme traders or retail investors that coordinate their efforts via social media platforms on popular equities, typically in an attempt to spark a short squeeze.
Indeed, AMC was on life support during the initial onslaught of the COVID-19 pandemic, unable to generate revenue amid government restrictions on personal mobility. However, the influx of cash that meme traders delivered to embattled organizations like AMC meant that the cineplex operator could build up its balance sheet.
As of the second quarter of this year, the company had cash and cash equivalents of $965 million. To put this into context, on December 31, 2020, AMC had only $308 million in cash.
Still, investors will want to be cautious about overdoing it with AMC stock. Primarily, the balance sheet itself is in deficit to the tune of $2.33 billion. Therefore, it’s possible that should any other shocks impacting movie theater stocks materialize, management may be forced to induce dilutive actions.
Is AMC Stock a Buy, According to Analysts?
Turning to Wall Street, AMC stock has a Moderate Sell consensus rating based on two Holds and three Sells assigned in the past three months. The average AMC stock price target is $5.53, implying 44.2% downside potential.
Cinemark (NYSE: CNK)
Hardly as exciting as its counterpart, Cinemark is the quiet kid of movie theater stocks. While it still brings home the bacon, the scale isn’t up to par with AMC Entertainment. For instance, in Q2 2022, Cinemark posted revenue of $744 million, representing year-over-year growth of 152%.
On the other hand, during the same period, AMC posted top-line sales of $1.17 billion in Q2 2022, up 162% year-over-year. Therefore, with a bigger footprint and far larger social cachet thanks to the meme-stock phenomenon, AMC would seem to be the clear winner among movie theater stocks.
However, the key difference comes down to implied forward stability. While AMC has more cash (Cinemark has $695 million in cash and equivalents in the most recent quarter), the latter’s total stockholder equity is in positive territory, to the tune of $208 million.
To be upfront, from a retained earnings perspective, neither one of the movie theater stocks looks appealing. However, Cinemark has a more manageable loss, at $537 million. In sharp contrast, AMC’s retained earnings loss sits at a staggering $7 billion.
Is CNK Stock a Buy, According to Analysts?
Turning to Wall Street, CNK stock has a Moderate Buy consensus rating based on four Buys and three Holds assigned in the past three months. The average Cinemark price target is $21.43, implying 53.8% upside potential.
Conclusion: CNK is More Stable Than AMC
For the speculative investor, AMC stock may be attractive because of its potential to do wild things. Honestly, predicting meme trades is incredibly difficult, and one never knows when the bullish momentum will eventually collapse. On the other hand, CNK stock will almost certainly appeal more to conservative investors. With a much more stable balance sheet, Cinemark facilitates greater confidence.
Of course, the above narrative is all relative. Again, neither company inspires trust on an absolute basis. Still, if one had to make a choice, risk-averse investors would probably elect CNK.
