AMC Entertainment (NYSE:AMC) shares fell 80% in 2022, making it one of the worst-performing US stocks. So what’s behind the fall, and should I consider this tarnished entertainment stock for my portfolio?
Meme status
AMC is an American movie theatre chain. It owns, operates, or has interests in cinemas primarily located in the United States and Europe.
The company was on the brink of bankruptcy in 2021, but was given a new lease of life by retail investors.
AMC became a so-called meme stock, in that it gained viral popularity due to heightened social sentiment. Investors flooded into the company in May 2021, sending the share price soaring from around $10 to over $50.
Today, the stock is trading for around $5. Taking into account exchange rate fluctuations, if I had invested £500 in AMC a year ago, today I’d have just over £100. That would be a terrible return on my investment.
Problems remain
AMC devised several plans to raise more capital to pay down its debts and invest in acquisitions, theatre upgrades, a popcorn business and even a gold mine after it was saved by retail investors in 2021.
However, the firm has struggled to post a profit in recent quarters. Debt is a major problem here — it stands at $5bn, around double the stock’s market-cap.
This debt was largely accrued prior to the pandemic, due to acquiring several smaller theatre chains and investing in upgrading its theatres seating and screens.
For now, the company has enough capital to make it through the next few years. As of June 30, AMC had available liquidity of more than $1.17bn.
Other challenges include a current lack of blockbuster movies. Analysts highlight that the industry only released four would-be blockbuster films in the four months to Christmas this year.
By comparison, in 2019, there were nearly two-dozen blockbuster-style films slated on the calendar. Star Wars: The Rise of Skywalker, generated $177m in domestic ticket sales in the first weekend alone.
Should I buy AMC shares?
Reports suggest that people are returning to cinemas and are spending even more on tickets and popcorn than before the pandemic. However, the long-term trends are not positive. Streaming services such as Netflix and Disney will continue to disrupt the cinema industry.
Personally, there’s just too much bad news surrounding this firm for me to buy it. The company has a disproportionately sizeable debt burden and the current economic environment, paired with the lack of blockbuster releases, makes my near-term forecast pretty bleak.
I know some people will say you can’t replicate the cinema experience at home, but I personally haven’t seen any need to go to the cinema in years.
In fact, when I started writing this, I researched the nearby cinema to see if there was anything I wanted to see. Other than Avatar 2, Everyman Chelsea appears to be mainly showing old films including Diehard and Love Actually. Avatar 2 could be interesting, but it’s more than three hours long!
Because of this, I’m not buying. And I don’t see the situation improving.
