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Simon Mugo

Should I buy AMC stock?

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Hi James, thanks for such a great question. Most investors have written off AMC Entertainment holdings given that they have closed all their 600+ theaters amid the COVID-19 outbreak. However, I'm glad to see there's someone who sees the potential of AMC despite all the bad news surrounding the company.

Many analysts are predicting the demise of movie theaters as many people choose streaming services such as Netflix of going to theaters to watch movies. However, I do not think that this is the end for AMC given that movie production companies such as Disney still prefer to release their blockbuster movies via theaters.

AMC has rallied this week and I think the company still has some upside potential from the $4-$5 level where the stock is currently trading. I'd wait for a pullback to the $4 resistance level to enter a new position given its recent rally and upcoming earnings report. 

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Hello,

AMC shares rose in May this year following acquisition rumors by Amazon. Needless to say, the buyout will attract movie enthusiasts into Amazon Prime’s ecosystem thanks to AMC’s acclaim in the entertainment industry. Amazon will be able to run film screening including individual programming.
This is not the first time the theater heavyweight is being bought. Back in 2012, Chinese multinational Dalian Wanda got it for $2.6 billion. During this partnership, AMC not only paid £920 million for London-based Odeon Cinemas but also $1.1 billion for America’s Carmike Cinemas. 
Although $600 million of its shares were repurchased in 2018, AMC net debt last year stood at $4.7 billion. As such, the company’s credit ratings may hinder its acquisition. The fact that Coronavirus has emptied movie theaters makes it even harder for AMC shareholders to accept an all-cash deal.

Though the takeover could materialize, investors should be wary of AMC stock. The shares may continue dipping if Amazon doesn’t step in.

 

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Hi James, thanks for asking the question.

Shares of AMC Entertainment Holdings (NYSE: AMC) advanced 5% on Wednesday, in spite of releasing lower-than-expected earnings report for Q1 2020. 

The movie theatre chain had a horrid quarter due to COVID-19, halting its operations almost completely through the end of Q1. 

The quarterly earnings report showed a 22% plunge in revenue, compared to the same period last year, with theatre attendance dropping as high as 24%. The company reported a net loss of $2.2billion, while the net loss on a non-GAAP basis was almost $232 million, compared to the $102 million in the first quarter last year. 

None of these numbers were even close to meeting analysts’ expectations. 

Vice President and Senior Analyst at Barrington Research Associates, Jim Goss, said “significant uncertainty remains for the company” because of the high level of leverage in its corporate model. He said that the company had issues even before the coronavirus pandemic, such as insufficient free cash flow to pay off the $5 billion debt.  Goss didn’t mark AMC stock as “buy” because he thinks there are better investment options right now.

Chief Executive Officer of AMC, Adam Aron, said the company plans to bring theatres back to service in the near future. 

"Our current plan is to have almost all of our theatres globally operating in July, which is in time for and assumes that the industry stays on schedule for Warner Bros.' release of Christopher Nolan's Tenet, currently scheduled for July 17, followed by Disney's release of Mulan, currently scheduled for July 24," he said. 
 

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Hi James, thanks for coming here asking for advice. 

Frankly speaking, I think now it's not the time to invest in cinema stocks. The COVID-19 outbreak has dealt a deadly blow to the industry with cinemas closed for more than 2 months. The number of infection seems to be on the rise again, hence we may see restrictions reintroduced globally. 

The state of the cinema industry is best reflected in the fact that Cineworld, the world's second largest cinema chain operator, pulled out of the deal to buy Cineplex, the Canada-based chain operator. The British cinema giant cited a "breach of contract" as a reason for getting out of the contract. However, analysts believe that Cineworld had to pull out of the deal given the financial blow the COVID-19 has dealt to the cinema industry. 

"Cineplex believes that Cineworld's allegations represent buyer's remorse, and are an attempt by Cineworld to avoid its obligations under the [agreement] in light of the COVID-19 pandemic," the company said.

I think this situation is a great example of the state of the cinema industry currently. We may have to wait for years before seeing cinema sector stable again with solid and regular revenues. Until we reach that point, I think the best course of action is to stay on the sidelines.

I hope this was helpful.

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Hi James,

Thanks for coming here. 

AMC stock has come into a spotlight of the wider public after media reported last month that the e-commerce behemoth Amazon may be acquiring the theater chain. Hence, many people do ask questions about the AMC stock and I see that there's interest in this forum as well. 

All in all, the AMC share price is struggling a lot this year which is completely understandable given the nature of their business. The national lockdowns imposed as a measure to stop the spread of COVID-19 meant that theaters are closed. The company operates around 600 theaters in the United States only, and the lockdown facilitated an unprecedented impact on the business and revenues. 

The company found itself in the media spotlight again two days ago when it said it won't require all guests to wear masks, but would rather "encourage them". This stance invited a strong backlash from the public against AMC, including some famous actors. The theater chain was then forced to reverse its decision to require all guests to wear masks when inside the theaters. 

“At AMC Theatres, we think it is absolutely crucial that we listen to our guests. It is clear from this response that we did not go far enough on the usage of masks. As we reopen theatres, we now will require that all AMC guests nationwide wear masks. The speed with which AMC moved to revise our mask policies is a reflection of our commitment to the safety and health of our guests,” AMC Chief Executive Adam Aron said in a statement.

The stock price, as you correctly noticed, modestly recovered off the multi-year lows to trade above the $7.00 handle but that bounce was short-lived. The inability to close above this level has cost the buyers a lot as the opposite market side was able to push the price lower. Therefore, the AMC share price closed the week more than 6% in the red. 

All in all, I'd join Brock in advising caution when investing in the AMC stock. I don't believe that it's wise to invest in cinema stock in this environment as there are many other more profitable industries that are better positioned at this moment.

Thank you for trusting is with our assessment. 

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Hello James,

Shares of AMC Entertainment Holdings Inc. (NYSE: AMC) jumped almost 14% in after-hours trading on July 7 after the Wall Street Journal published a report saying that the world’s largest movie theater chain is close to making a restructuring deal that would prevent the company from bankrupting in the short run. 

According to the reports, AMC rejected a financing offer from lenders such as Apollo Global Management to accept $200 million from Silver Lake Group to help realize the restructuring process, plus $200 million in financing from junior bondholders.

AMC took a huge blow after it had to shut down 1,000 theatres globally due to the coronavirus pandemic. The company scheduled the reopening of theatres for July 30 and said it expects a Q1 net loss of $2.4 billion.
 

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Hey James,

Shares of AMC Entertainment (NYSE: AMC) climbed on Tuesday in spite of the absence of news about the theatre chain.

Meanwhile, AMC struck a new deal with Universal Pictures, which will essentially cut the exclusivity of all motion pictures made by Universal Pictures and Focus Features from 75 days in theatres to only 17 days. 

This means that the audience will now have to wait only 17 days before new movies become available on PVOD platforms like Netflix, Hulu, Amazon Prime etc. The deal, however, will likely hurt cinemas revenues. 

AMC’s rival and the second-largest theatre chain in the world, Cineworld, dropped 4% following the news about the deal. The stock is now prone to hit March lows once again.

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