The US movie theatre chain AMC Entertainment‘s (NYSE: AMC) share price rose about 950% in the past year. Traders are expecting a strong summer movie season. On Wednesday alone, the stock price rose 95%, as the company announced a new programme to connect with its retail investors.
Will the stock frenzy continue? Is it too late for me to buy the stock?
What is AMC Investor Connect?
AMC Investor Connect is the company’s new programme to directly communicate with its retail investors and provide them with special offers. The first offer includes a free large popcorn when attending an AMC theatre this summer. It will also include invitations to special screenings. There are more than 3.2m individual investors who own a stake in AMC, comprising 80% of the company’s ownership as of 11 March, 2021. I believe these initiatives will increase the shareholders’ loyalty. The company’s CEO is also trying to increase business through its vast network of shareholders.
AMC company’s fundamentals
The company’s revenue for the first quarter fell by 85% year-on-year to $148.3m. This was primarily due to the lower operation of its theatres due to Covid-19 restrictions. AMC operated 585 domestic theatres in the US and 97 international theatres, with limited seating capacities. Net loss was $568m compared to a net loss of $2.2bn for the previous year. In my opinion, the next few months will be crucial for the company as global restrictions ease. This will give a better understanding of demand.
AMC had about $5.5bn in debt and $813m in cash at the end of March 2021. The company has an equity deficit of nearly $2.3bn. In my opinion, even though liquidity has increased, the balance sheet is a matter of concern. The company had to frequently raise debt and equity in the past year to keep afloat.
More recently, the company raised about $230.5m from the sale of equity to hedge fund Mudrick Capital on Tuesday. It sold 8.5m shares for a price of about $27.12 per share. The cash proceeds will be used for its possible acquisitions and debt reduction. Reports suggest that Mudrick Capital immediately sold the stake with a profit.
What’s next for AMC’s share price
The share price has seen solid gains in the past year. I am worried about the rapid rise in the shares as capacity in theatres will take some time to reach the pre-Covid-19 level. Online streaming services like Netflix, Amazon Prime, and Disney+ are another threat to theatres. A lot of people could continue to watch movies at home.
Next, many analysts warn to be cautious about meme stocks like AMC and GameStop. Meme stocks are the stocks that are moved by social-media-centric users of Reddit or Twitter. One reason, in my view, is that there will be a wide disparity between the current price and the fundamentals.
In my opinion, AMC’s share price is overvalued after the recent strong run. Also, the high debt is a concern for me. So, I would not be a buyer of the stock today. There are various other good opportunities that I would consider.
