Massive September Sales: Buy Weaker AMC Stocks?
AMC Entertainment Holdings (NYSE: AMC) stocks are trending down. From September 15 to 21, the stock is down 17.9%. The company is no stranger to volatility. The share price rose from $ 5 per share to $ 62 and fell back to $ 39 in 2021.
This type of volatility is usually rare, but AMC has caught the attention of a group of Reddit traders who intend to pull off a short squeeze. As a result, frequent buying and selling creates turmoil in stock prices. However, these exchanges are often not linked to AMC’s business prospects, which are improving but remain very poor. So, has this recent drop in the AMC share price made it an attractive investment?
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Moviegoers don’t want the same old experience anymore
AMC’s business is to broadcast movies on the big screen. The business needs to bring in large groups of people to justify the high expense of physical theater infrastructure. Unfortunately, fewer people go to the movies. Movie ticket sales peaked in the United States and Canada in 2002 at $ 1.57 billion. They have been steadily declining since then, falling to 1.24 billion in 2019.
The decline can be attributed to several reasons, including lack of innovation, increasing competition from alternative entertainment options and unfavorable prices. AMC’s only major innovation over the past two decades is the replacement of cloth seats with leather recliners. The upgrade was undoubtedly expensive, considering the material and manpower required, and did not increase people’s interest in theaters.
The big screen and high-quality surround sound in theaters were a big draw; however, this advantage diminishes over time. TV makers have innovated quickly and bring high quality big screen TVs to homes at affordable prices. If you can get a great viewing experience from the comfort of your home, you are less likely to make an effort to go to the movies.
Finally, the price for watching a movie in theaters versus streaming a movie is decidedly against AMC. Taking a family of four to AMC to watch a movie with popcorn and soda will set you back almost $ 100 (prices will vary by a few dollars per ticket depending on location). Compare that to a Netflix subscription, which costs less than $ 1 per day to keep the family entertained all month.
The industry neglected to adapt to changing consumer tastes, arrogantly raised ticket and concession prices, and invested in features that people did not like very much. All of this has led to fewer people visiting theaters. The financial devastation caused by the pandemic could mean the industry will never even regain the revenue and attendance levels of 2019.
AMC’s outlook for the next few years is bleak
To make matters worse, AMC has $ 5.5 billion in debt on its balance sheet. Interest expense on corporate loans, which reached $ 240 million in its first two quarters of 2021, is a burden on operations, and the company needs to think about how it will repay the amounts. in principal at their maturity. The company has earned more than $ 240 million in operating revenue just three times in the past decade, and just two of those three.
At this point, it does not seem likely that he will earn enough money to pay off the $ 5.5 billion in debt resulting from his operations. His other hope is to improve the business enough to refinance the debt at better rates.
Management has already sold almost all of the shares it is authorized to sell to raise funds. When he approached shareholders about the prospect of increasing the authorization of a share sale to raise more money, they were against the idea. They are thinking of a short squeeze, not the long-term viability of the company, and increasing the number of shares could potentially undermine that intention while diluting the value of their existing shares.
Therefore, despite the massive sales, the stock is still too expensive to buy. The company has lost money on the bottom line in three of the past four years, and there is little hope that the industry will return to growth.
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Parkev Tatevosian has no position in the mentioned stocks. The Motley Fool owns shares and recommends Netflix. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.