It’s been a year since the meme-stock frenzy peaked with AMC Entertainment Holdings (AMC 2.31%) hitting all-time highs in early June of last year. The stock has shed 84% of its value, but it’s not as if AMC bears have exactly had the last laugh. A lot of their stocks have fallen sharply, too.
AMC earned some of its downticks. Its share count has exploded fivefold through the pandemic, as the country’s largest multiplex operator sold a ton of new stock at low prices to stay afloat. History also isn’t likely to look kindly on the head-scratching investment in gold mining, an unnecessary distraction for a company that already has a lot on its hands in turning an industry around. There was also a lot of unsubstantiated hype, as inexperienced online traders touted unrealistic price targets based more on hope and noise than actual fundamentals-driven financial analysis.
It’s easy to want to see AMC fail if you’re on the outside looking in, but it’s also time to put a cork in that schadenfreude. The multiplex industry is starting to turn the corner. The box office trickle is finally starting to become a gusher, and it’s possible to finally make a legit bullish case for AMC Entertainment stock even with its more than 500 million shares outstanding.
The one thing that has kept AMC’s recovery to pre-pandemic levels from getting on track is the long gap between blockbusters. There was a three-month gap between Spider-Man: No Way Home and The Batman, and then another two months before Doctor Strange in the Multiverse of Madness brought back patrons in droves.
Folks aren’t turning out for indie films and a lot of genres that they can easily stream from home. Give AMC a steady diet of superhero and action flicks — the kind of movies that are undeniably better in a crowded theatrical setting — and its box office receipts will roar like the MGM lion. We’re finally there. Top Gun: Maverick shattered Memorial Day holiday weekend records for the industry, and two weeks later Jurassic World: Dominion gave AMC the one-two punch it has lacked in its recovery.
So encouraging to report that AMC had another fabulous weekend due to the huge opening of Jurassic World Dominion. AMC’s admissions ticket revenues in the U.S. and abroad: 15% higher than the same weekend of 2019, pre-pandemic. Right after the record setting Top Gun: Maverick. pic.twitter.com/sfM5tOnUe3
— Adam Aron (@CEOAdam) June 14, 2022
Right now it may not seem like this is enough. Admissions for the industry are down nearly 30% so far for the quarter compared to the second quarter of 2019, even after these past three robust weekends. Year to date it’s still down 37% when stacked up against 2019 (and 41% below where it was at this point in 2018).
Things will get better. What’s better than the one-two punch that had AMC clocking in with 15% more in admissions revenue than the comparable pre-pandemic weekend in 2019? Let’s throw a third fist into that fight. Lightyear is going to be huge this weekend. We’re talking about three huge movies drawing three slightly different audiences.
You can hate AMC’s cash-burn rate and its debt-heavy balance sheet. I don’t like it. You might think the conspiracy theories about dark pools and illegal shorts are for fringe speculators wearing popped Jiffy Pops for hats. It’s not a good look. You still don’t want to be betting against AMC Entertainment a week from now when the box office numbers roll in for this upcoming weekend.
Analysts don’t see the chain turning a profit until at least 2026, and the bearish argument is that AMC’s liquidity can’t last that long. Here’s a second take, coming from someone who isn’t fanatical about the meme stock movement and its unjustifiable price targets that — in some egregious cases — would make AMC the most valuable stock on the planet.
AMC could be profitable a lot sooner than four years from now. This summer will be huge for the box office, and the chain itself has gotten smarter about its real profit centers. During the pandemic lull we’ve seen AMC spring to life by adding mobile concessions ordering across the chain and sprucing up its food offerings, even addding libations in self-standing bars. Consolidated food and beverage revenue per customer is up a whopping 40% since 2019.
Sure, there’s a lot of debt to eat through here. However, with most of the helium now out of the meme stock — and its business fundamentally better than before — it’s time to start believing in AMC as an investment again.