The Motley Fool

Is AMC stock heading back to $60?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Blue question mark background and dark space
Image source: Getty Images

Shares in US cinema chain AMC Entertainment (NYSE: AMC) have risen by 588% to $31 over the last year. Investors who bought and sold their AMC stock at the right time may have enjoyed life-changing gains.

However, the AMC share price has fallen by 50% since the start of June. This popular meme stock no longer appears to be heading to the moon. Today, I’m asking whether this slump could be a buying opportunity for me — or a warning to avoid AMC.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Back in business

AMC — which is the world’s largest cinema operator — released its half-year results last week. Chief executive Adam Aron said that the group’s financial results for the three months to 30 June were “considerably well ahead” of expectations. High-margin food and drink sales were also said to be strong as guests “splurged” on their return to the movies.

In reality, I think it’s too soon to predict how long it’ll take the industry to make a full recovery. Most AMC cinemas have only been open since the start of June. But what I can do is to take a look at the company’s numbers to check on progress.

Good results, so far

AMC generated revenue of $445m during the second quarter, thanks to 22.1m cinema visitors. To see how this compares to more normal times, I looked up the numbers for the second quarter of 2019. These show revenue of $1,506m and 97m visitors.

Based on these numbers, AMC’s second-quarter performance this year doesn’t seem too bad to me. With most cinemas only open for one month in the quarter, the group generated almost one-third of the revenue it earned during the equivalent three-month period in 2019.

Of course, AMC’s still losing money. Last week’s numbers showed a $344m loss for the second quarter. Analysts expect these losses to continue. The latest consensus forecasts suggest the group will report losses in 2022 and 2023, even as sales recover.

However, I think there’s a much bigger risk that potential investors like me should worry about.

AMC stock: my verdict

In last week’s results, Aron said the company had available cash of “more than $2 billion” — more than at any point in AMC’s 101-year history.

One reason for this is that he was smart enough to take advantage of the meme stock rally to sell new AMC stock at high prices. But the group still has net debt of $3.7bn — and the number of AMC shares in circulation has risen from 104m to 480m.

This is important because it means future earnings per share are likely to be much lower than in the past. For example, the last time AMC reported a profit was in 2018, delivering earnings of $0.91 per share.

If AMC generated the same level of profit today, I estimate these earnings would fall to just $0.19 per share. With the stock currently trading at $31, my sums suggest the company is trading at 160 times its peak earnings from the last five years.

I don’t see any reason to expect AMC to be more profitable in the future than it was pre-Covid-19. So the shares seem far too expensive to me. In my view, AMC stock is likely to fall further. I think a return to $60 is very unlikely and I’m not buying.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.