With the movie-theater sector continuing to face very tough challenges and AMC (NYSE:AMC) still carrying a tremendous debt load, AMC stock remains tremendously overvalued, and its long-term outlook is terrible.
Theaters Are Still Struggling
In line with my previous predictions, movie theaters are struggling, even though the coronavirus pandemic is in the rearview mirror. Since theaters still have to compete against the popular streaming service, which put tens of thousands of movies at consumers’ fingertips, that’s not surprising, and theaters’ business is likely to deteriorate further as Americans get more used to watching their favorite movies on streaming channels. And of course, the situation doesn’t bode well for AMC and AMC stock.
According to CBS, U.S. movie theaters’ ticket sales, as of March 10, were still trending down 35% from their pre-pandemic levels. Consider also, though, that theaters’ costs have surged a great deal in the last two years due to inflation and much higher labor expenses due to a shortage of low-end workers and higher minimum wages enacted by many states.
And remember also that movie theaters were not exactly thriving before the pandemic when the streaming services were already meaningfully cutting into the theaters’ business. As evidence of that point, theaters’ “foot traffic” last year was just a bit over 50% of their annual average between 1999 and 2019.
Citi and Others Are Very Bearish on AMC Stock
Boding badly for AMC was a recent, bearish note from Citi. Calling the theater owner “overvalued,” Citi analyst Jason Bazinet believes that AMC may have to sell more shares of AMC stock in the future to avoid bankruptcy.
The bank is worried about the theater owner’s high debt levels. Indeed, with AMC’s total debt standing at $10 billion as of the end of last quarter, far outweighing its market capitalization of $2.57 billion, I think that’s a very valid concern.
Meanwhile, AMC stock recently climbed on a report which stated that Amazon (NASDAQ:AMZN) was interested in buying AMC. But investment bank Wedbush thinks that scenario is “extremely unlikely” to materialize because of AMC’s huge debt. Additionally, Wedbush believes that “Amazon could probably acquire each Cineworld theater from the latter firm’s creditors for only $200,000 each,” as I noted in a previous report.
As of December 2022, Wedbush had a $2 price target and an “underperform” rating on AMC, citing the company’s large debt load and the efforts it will have to undertake to keep retail investors confident in its outlook.
Also worth noting is that a highly respected short seller, Jim Chanos, is shorting AMC stock.
AMC’s Fourth-Quarter Results Were Uninspiring
In the fourth quarter of 2022, AMC’s operations burned $33.3 million of cash, while its net loss, excluding certain items, rose to $153 million from $57.2 million during the same period a year earlier. Moreover, its EBITDA, excluding certain items, tumbled to $14.5 million from $159.2 million.
The financial results indicate that AMC’s business is still deteriorating, and I don’t see any reason to believe that the latter situation will change over the longer term.
AMC’s Valuation Is Unattractive
Another InvestorPlace contributor, Thomas Yeung, a Chartered Financial Analyst, wrote that the theater owner’s “forward EV/EBITDA multiple” indicate the shares are only worth $1.80-$2.25 per share. Despite the stock’s recent slide, Yeung’s target is still way below the shares’ current levels.
The Bottom Line on AMC Stock
The movie theater business is reeling (no pun intended), AMC’s dent load is staggering, many smart people are bearish on AMC stock, the company’s Q4 results were unimpressive, and the shares appear to be vastly overvalued.
Given all of those points, I believe that the company’s medium-term and long-term prospects are bleak, and I strongly recommend that investors sell all of their shares of AMC stock.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.