The largest cinema network AMC Entertainment (NYSE:AMC) suffered the most due to the pandemic. Despite raising funds and preventing the company from going bankrupt, it failed to see the light at the end of the tunnel. Due to blocking and movement restrictions, most of its locations had to restrict capacity or shut down. This had a major impact on AMC’s actions.
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AMC owns most of the theater industry in the United States. AMC’s shares hit a low of $ 2.10 and have rebounded by more than 75% since lows. Due to short squeezing activity, the stock hit the $ 20 level and fell again. He is currently trading hands for $ 10. I believe the stock will drop sharply in the coming months.
The results for the fourth quarter were disappointing with losses and huge indebtedness. It will certainly take a long time for AMC to return to pre-covered revenue and growth levels. The company may survive the pandemic momentarily, but the long-term outlook does not look promising. With that in mind, let’s take a look at my AMC stock investment case.
Disappointing fourth quarter results and rising debt
For the fourth quarter results, the company reported a loss of $ 1 billion in the holiday season. Sales were $ 162.5 million and were down 88% over the same quarter last year. The fourth quarter loss was $ 946.1 million, which was $ 14 million the previous year. These figures clearly show that AMC has failed to cope well with the pandemic.
With a loss of $ 3.15 per share, fourth quarter sales reached $ 1.24 billion, a steep drop of $ 5.55 billion in 2019. Although most rental theaters are closed, expenses remained the same. There was no drop in operating expenses compared to the previous year and the cost of interest on corporate loans increased in 2020.
AMC has a growing mountain of debt. It is dealing with a debt of $ 6 million and has raised more cash from the issue of shares. The company has been able to deal with the fear of bankruptcy by issuing shares. It received a cash injection of $ 917 million and issued an additional 164.7 million shares. This debt has an interest rate of 15%. Now, even if the company generates a profit in the coming months, there will be wear and tear due to the interest liability.
The dynamics of the sector changed in the past year. People prefer to stay at home and enjoy their favorite movies through streaming platforms. This will be a major blow to AMC. The studios prefer to release the films simultaneously on a streaming platform and in a theater. The company relies heavily on creators for new films and exclusive rights. If demand for streaming platforms continues to rise, AMC’s business model may be at risk. This will have a negative effect on AMC’s shares.
The final result of AMC’s stock
The cinemas opened in New York, but did not attract many viewers. With the launch of vaccines and the gradual opening of public places, the expectation is that some of the main launches will attract the public. But it can take some time. We are not completely sure yet and people will not be willing to enter theaters without knowing the vaccine status of others in the theater.
AMC has a difficult journey ahead and the debt burden will slow its growth. Even if cinemas in other locations reopen, it will be difficult to reach the pre-coveted level of growth. AMC’s shares appear to be overvalued at current levels of revenue and debt. I think it’s better to stay out of stock for now. It will fall further in the coming months.
As of the date of publication, Vandita Jadeja did not (directly or indirectly) hold any positions in the securities mentioned in this article.