If I were an investor in meme stock AMC Entertainment (NYSE: AMC), I might finally be starting to feel vindicated due to its recent results. Yet after reaching all-time-highs in June, the stock has discouragingly, lost almost half of that value. But is it a really buy for me now or is it still overvalued? That for me, is the key question before buying the stock.
AMC’s revenues increase, losses shrink
The AMC share price was up 3.4% yesterday after its results showed signs of recovery. In the second quarter (Q2) of 2021, its revenues increased by 23.5 times from Q2 2020. Cinemas opened up in April this year in the US, which is the cinema chain’s biggest market. By contrast, last year during the same period, the world was deep in Covid-19 restrictions.
Besides this, AMC points to three other reasons for its success during the quarter, which saw 22m customers in its theatres. One, vaccinations in its markets have enabled a safe return to cinemas. Two, some of the movies have done well, like the superhero film Black Widow and the action thriller F9: The Fast Saga.
Three, there has also been a lot of spending on food and beverages, which accounted for 36% of Q2 revenues. AMC added that it is a high-margin business as well, which is a positive for the company that is otherwise loss-making right now.
However, the losses are reducing. In Q2, they declined by $217m to $344m.
A similar pattern is seen for H1 2021. Revenues were still below H1 2020 because of the lockdowns in the early part of this year. But there was a big reduction in losses.
Long way off from 2019
Encouraging as these numbers look, the fact is that AMC Entertainment is still a long way off from where it was in 2019. If its revenues remain as strong as they have been in Q2, for full-year 2021, they would still be at only around 27% of the $5.5bn earned in 2019. And it could well end this year with a loss too.
At the same time, its share price has run up to almost five times the levels seen at the end of 2019. Driven by Reddit-influenced investors, the AMC share price is hard to justify looking at its fundamentals, even if it has fallen fast in the past few months.
My takeaway
The biggest challenge I find here is that there is no way of knowing how long the meme stock rally can continue. As a result, the share’s price and its financials can be completely at odds with each other, something the company itself has alluded to in the past.
Like many other recovery stocks, I would have liked to get behind it at reasonable valuations. But at present, they present a serious risk of a future crash in share price. As such, I will stay very far away from AMC stock for now.
