The big two

Both companies have fallen a long way from record highs in 2021. Retail investors had famously banded together to buy the shares, pushing the price up, and leading to sell orders triggering for some who had short positions. This series of events is known as a short squeeze. It led to a cycle of further surges, and eventually some controversial buying restrictions by brokerages.

AMC has experienced a 32% year-on-year decline, but with Gamestop up 41% over the same period.

AMC’s $8.7bn debt burden looms large, especially with interest rates near to recent highs. Annual revenue is a healthy $4.49bn, with a gross margin of 12%, but with a concerning net profit margin of -8.15%. Perhaps most alarming is a debt-to-equity ratio of -255.5%, suggesting significant financial challenges.

Looking ahead, the company is forecasting solid annual earnings growth of 46% for the next five years. However, as management continue to increase the number of shares outstanding, up 128% in the last year, debts and negative shareholders’ equity present significant risks.

With a market capitalisation of $10.2bn and a price-to-sales ratio (P/S) of 2.1 times, Gamestop’s valuation also appears stretched relative to traditional retail metrics.

The company’s annual revenue stands at $4.92bn, with a gross margin of 25.45% and a net profit margin of 0.51%. While GameStop has achieved profitability, analyst projections of a 27.4% annual earnings decline over the next three years raise concerns about sustainable growth. Whether the firm can successfully transition from bricks-and-mortar to e-commerce is unclear.

Is there an opportunity still?

So when evaluating these meme stocks, it’s essential to consider performance relative to industry peers and broader market trends. GameStop’s price-to-book ratio of 4.9 times far exceeds the S&P 500 average of 3.8 times, while AMC’s isn’t meaningful due to negative equity. Moreover, the beta values, that compare volatility to the wider market, have GameStop at 1.77, and AMC at 2.14, underscoring that these stocks aren’t for the faint hearted.

Yes, both companies are pursuing strategic shifts to adapt to changing market dynamics. GameStop’s e-commerce pivot and AMC’s digital initiatives could drive future growth. Broader economic factors, including inflation trends and consumer spending patterns, will significantly impact these discretionary spending-focused businesses. But we can’t move past the reality that events and community-led enthusiasm are the key drivers behind the movement of these stocks.

With plenty of investors still holding large short positions in these companies, both remain susceptible to new short squeeze events. This presents opportunities for short-term traders, but enormous risks for long-term investors. As a long-term Fool, these aren’t risks I consider worth taking.

I’m not convinced

While the allure of meme stocks persists, I suggest prudent investors should approach AMC and GameStop with caution. Consider these stocks as speculative positions within a diversified portfolio rather than core holdings.

So while companies like AMC and GameStop continue to captivate much of the market, the long-term investment viability remains uncertain. I’ll be keeping my distance.

The post AMC, GameStop or neither? My take on the future of 2 meme stocks appeared first on The Motley Fool UK.

What happened?

Let’s set the scene: the shares have tumbled a jaw-dropping 85% over the past year. The company that once commanded a market cap larger than many established blue-chip players now sits at a relatively modest $2bn valuation.

The company’s story is one of survival against the odds. When the pandemic shuttered cinemas worldwide, many thought it was curtains. But then came the meme stock frenzy, a plot twist worthy of any movie on the big screen. Retail investors, many armed with stimulus checks, and a penchant for nostalgia, piled into AMC stock, sending it to astronomical heights.

However, as with many sequels, the follow-up performance has been less than stellar. The company’s fundamentals tell a sobering tale: negative shareholders’ equity, high volatility, and no profitability in sight for the next three years.

A recovery in sight?

However, I feel there’s still a glimmer of hope in this gloomy narrative. Revenue is showing signs of life, with $4.81bn in the last year, a decent 11% rise. The big question is: can they turn this revenue into profit in the long term?

No discussion here would be complete without mentioning two co-stars: debt and share dilution. With a huge debt-to-equity ratio of -223.7%, the business is carrying a tremendously heavy debt load. And let’s not forget the substantial dilution shareholders have faced, with the number of shares outstanding growing by a whopping 132% in the last year alone.

Yet, CEO Adam Aron continues to find new ways to keep investors engaged. From accepting cryptocurrency, to investing in gold mines and branching into popcorn sales, management have shown that nothing is off the table.

Never a dull watch

So, what’s the next act? The company is trading at a 43.9% discount to a discounted cash flow (DCF) estimate of its fair value, which might tempt value investors. But remember, just because something’s on sale doesn’t mean it’s a bargain. Management needs to prove it can translate revenue into profit, and manage that debt load before it becomes a feel-good comeback story.

The cinema industry itself faces enormous challenges. Streaming services are the big bad wolf at the door, and the company needs to convince movie-goers that the big screen experience is worth leaving the comfort of their sofas.

So for me, the story surrounding AMC stock is far from over. It could be a phoenix rising from the ashes or a cautionary tale of market exuberance. Either way, it promises to be a gripping outcome. But I want my money to be growing, not entertaining me. For that reason, I’ll be avoiding this one for now.

The post Down 85% in a year, what’s next for AMC stock? appeared first on The Motley Fool UK.

The business

The entertainment industry, heavily impacted by the pandemic lockdowns and streaming service dominance, has shown tentative signs of recovery. Summer blockbusters and a swell of new releases following the pandemic have brought audiences back to the big screen, bringing a much need boost to revenue.

However, financial health remains a major concern. The company accumulated significant debt during the pandemic to stay afloat. While steps have been taken to reduce it through stock offerings, the burden is still substantial. This debt limits the ability to invest in upgrades and new technologies, which could be crucial for attracting customers in the long run in a competitive landscape.

Interestingly, a discounted cash flow calculation suggests the share price could be as much as 56% undervalued. However, with such a drop from the peak, I can fully understand why the market would be hesitant in trusting any one metric to make a decision.

Fundamentally, the business is still unprofitable. With this unlikely to change any time soon, the share price may have some further declines ahead, unless the events of 2021 repeat themselves.

The meme influence

The meme stock phenomenon of 2021, where retail investors banded together to drive up share prices, played a significant role in AMC’s story. While it provided a much-needed financial boost, it also led to high volatility and a disconnect between the stock price and the company’s fundamentals. This volatility continues to make this a risky investment, since traditional metrics such as the price-to-sales (P/S) ratio seem to matter less to some.

With Keith Gill, one of the key players in the 2021 Gamestop frenzy, now back in the public eye, meme stocks have seen tremendous rallies in the last few days. Many have now declined significantly, but volatility is certainly back on the menu.

The next move

As we learned in 2021, the next move for these stocks is almost impossible to predict. There may be ferocious rallies ahead, but the declines can be just as aggressive. Clearly the business itself is in a difficult position, but the influence of online communities to move the stock price is a whole other animal.

For me, I don’t want to touch AMC stock. I vividly remember the frenzy and chaos from 2021, and as much as many investors will do well with some luck, I don’t want to fall into the trap of chasing a rally, and potentially only seeing the decline.

The post Is AMC stock on the move again? appeared first on The Motley Fool UK.

Improving financials

In the third quarter of 2023, AMC reported a remarkable 45.2% increase in revenue, surpassing forecasts, and a significant earnings per share surge to $2.28. This performance could be seen as a major recovery and suggests potential resilience in the face of adversity.

Despite these positive indicators, the company’s financial health remains a concern. AMC reported its 14th consecutive quarterly loss (albeit lower than expected). The adjusted net loss for the fourth quarter was 14 cents per share, much better than the market’s expectation of a 21 cents per share loss, and actual revenue of $990.9m exceeded the forecast figure of $977.6m.

CEO Adam Aron has acknowledged that the worldwide box office might not return to its pre-pandemic levels until 2024 or 2025 at the earliest. However, he remains optimistic about the company’s multi-year recovery, especially with more major movies slated for release. The company’s earnings forecast supports this, with impressive 45% growth expected in the next year, far above the sector’s forecast expectations of 28%.

The Swift effect

The release of Taylor Swift’s Eras tour on AMC screens has had a considerable effect on the company in the last quarter through ongoing financial challenges and a competitive landscape. The film broke records for single-day advance ticket sales, generating $26m on the first day of sales alone​​.

In an unprecedented move for a modern Hollywood release, AMC also served as the distributor for the concert film. This decision reflects the company’s adaptive strategy in embracing new revenue streams.​ The financial benefits of this strategy were substantial, with the company receiving a significant 43% of box office revenue.

Such a move presents tremendous opportunities for the company. Many other artists may be looking to build on the success of the Eras tour in cinemas. So AMC may be ahead of the competition for an enormous income stream.

A mixed outlook

Investor sentiment around AMC is mixed, with some analysts projecting a grim outlook for the stock. The average price forecast for the next year is $2.39, indicating a potential 66% decline from its current price. Wall Street analysts have also given the company a consensus ‘sell’ rating based on its performance over the past three months.

However, the price-to-sales (P/S) ratio at 0.3 times suggests it’s still in a far more attractive prospect than many others, with the sector average at 2.1 times. Similarly, there’s the discounted cash flow calculation. This offers an approximation of a fair price and suggests that the share price of $7.43 is about 69% below the fair value of $23.82.

Am I buying?

While AMC has shown signs of recovery and resilience, its financial health remains precarious. The stock’s future performance is uncertain, with predictions ranging from a potential increase in value to a steep decline. Even if there’s another rally coming, I’m going to keep my distance from this one.

The post Is there another rally coming for AMC stock? appeared first on The Motley Fool UK.

That said, here are three stocks that I personally wouldn’t touch with a 10-foot barge pole.

BT Group

The first stock on my list is BT Group (LSE: BT.A). The telecoms giant appears to be in constant restructure mode, trying to unlock some sort of shareholder value. Yet the share price has declined by 49% in five years and around 66% over 10 years.

Meanwhile, the dividend is now half what it was just five years ago. Slow growth and rising costs are hurting the group’s margins and its net debt stands at an eye-watering £19.9bn.

Worryingly, it is also facing increasing compensation from rival telecom companies and there were staff strikes last year.

Now, BT recently named industry veteran and board member Allison Kirkby as its new chief executive. Maybe she can breath some life into the share price. But, personally, I’m not banking on it.

AMC Entertainment

Next up is US meme stock AMC Entertainment (NYSE: AMC). The share price has lost 98.5% of its value since surging to reach an all-time high in June 2021. Yet I still wouldn’t invest in the theatre operator.

Why? Well, I’d have to change this a title to 1 stock I’d avoid at all costs! to state all my reasons. But let’s focus on profitability first…Oh, there aren’t any profits.

So, let’s consider the firm’s recent announcement that it’s selling up to 40m shares. This shareholder dilution comes less than a month after it announced a 1-for-10 reverse stock split to increase capital. AMC’s total common shares outstanding has increased more than tenfold in the last few years.

These desperate fundraising measures aren’t the sign of a healthy enterprise. Perhaps management can conjure up some growth initiatives with the capital to offset the long-term structural decline of moviegoing.

Again, though, I’m not banking on it. And I don’t think the ongoing Hollywood strikes are helping cinema chains.

RC365

The third stock I consider to be a potential landmine is fintech firm RC365 Holding (LSE: RCGH). Like AMC, this is a stock that surged out of nowhere with very little in the way of underlying fundamentals to back it up. Since reaching 165p in July, the share price has lost 68% of its value.

Now, unlike the previous picks, RC365 is at least operating in a high-growth market. It runs a secure payment gateway service and offers IT solutions in Asia.

While this region is tipped for stellar long-term growth, China, its largest economy by far, is struggling right now. This economic backdrop isn’t conducive to explosive growth, which is what RC365 stock is all about.

Plus, even after its recent collapse, the stock is trading on a price-to-sales (P/S) ratio of 43. For context, a P/S multiple of 10 is generally considered unreasonably expensive.

Finally, the company only went public in 2022, so it doesn’t have much of a public market record for investors to assess. Overall, the stock is highly speculative, and I’d personally avoid it at all costs.

The post 3 stocks I’m avoiding at all costs! appeared first on The Motley Fool UK.

Meme stock mania

As a reminder, AMC Entertainment is the world’s largest cinema chain. Its core business had been lacklustre for a good while before Covid, with growing debt and falling foot traffic in its locations. The stock had actually underperformed for years. Then the pandemic and the subsequent lockdowns were a sledgehammer blow to the company’s balance sheet.

However, AMC became a popular meme stock in 2021 when retail investors banded together across online forums and collectively bought the shares. Having started 2021 at just $2, the stock skyrocketed more than 36-fold to reach an all-time high of $72 just six months later.

This speculative interest saved the company from the brink of bankruptcy. Management seized the opportunity to issue new stock at high prices, raising significant amounts of capital.

In fact, when Cineworld (AMC’s competitor) filed for bankruptcy last year, its deputy CEO lamented also not getting caught up in the meme stock frenzy. He said: “While Cineworld would, of course, have welcomed the liquidity of becoming a ‘meme stock’ like AMC, we were never so lucky!”

However, fast-forward to today and the vast majority of the gains in AMC’s stock have evaporated.

Head-scratching moves

The company has continued to devise ways of raising further capital to pay down its substantial debt. While this is sensible with interest rates rising, some of its other ventures seem more questionable to me.

For example, the company made headlines last year when it announced it had bought a 22% stake in a gold miner called Hycroft Mining. AMC boss Adam Aron described the investment as “a bold diversification move”.

I see this as a bizarre use of capital, to say the least. The firm’s strength lies in trying to create — then extract — value from the moviegoing experience, not analysing gold mining stocks. It’s such a deviation from the core business that it makes me worry what other maverick moves might come next.

Box office recovery

That being said, there may be near-term positive catalysts for the stock. One is that the global box office is expected to recover strongly this year as more blockbuster films are released.

There was evidence of this last week when it was announced that Avatar: The Way of Water had hit $1bn in global ticket sales in just two weeks. More big-budget films are due in 2023.

Nevertheless, moviegoing isn’t expected to return to pre-pandemic levels until 2024 or 2025. If ever.

Will I buy the stock?

As renowned investor Ben Graham said: “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”

Never has this been more true than with AMC over the last two years. Over the long run, it’s the fundamentals of a company that matter most.

And with its shares heavily diluted and its net debt currently standing at $4.6bn, this company looks fundamentally unattractive to me. So I won’t be buying any shares.

The post Should I buy battered AMC Entertainment shares in 2023? appeared first on The Motley Fool UK.

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.

The post If I’d invested £500 in AMC Entertainment shares 1 year ago, here’s how much I’d have now! appeared first on The Motley Fool UK.

City analysts largely consider the world’s largest cinema chain as a stock to avoid heading into 2023. Stock screener Digital Look says five brokers with ratings on AMC shares class them as a ‘sell’. Two share a neutral rating on the stock. Not a single analyst has put a ‘buy’ on the business.

But forecasters don’t always get it right. Could now actually be a good time to pick up this fallen US stock?

Reasons to buy…

A weak slate of movie releases has battered revenues at cinema chains in 2022. The good news, though, is that the schedule looks far stronger for next year. This could lead to an explosion in ticket sales and by extension ignite demand for cinema operators’ pricey popcorn and fizzy drinks.

Superhero movies continue to be a huge cinema attraction. And in the New Year fresh entries in the Guardians of the Galaxy, Spider-Man and Ant-Man franchises are on their way. Other major blockbusters are in the pipeline too.

AMC is in the box seat to profit from the rebound. Its 10,500 screens makes it the biggest cinema chain on the planet. And perhaps encouragingly, it’s seeking to add to its footprint.

Last week it ended talks with Cineworld to snap up some of its ailing rival’s theatres. But it could potentially return to the table at a later date. It might also seek acquisition targets elsewhere.

…And more reasons to avoid

Okay, the cinema industry might be recovering from its recent depths. But there remain big doubts over whether it will return to pre-pandemic levels.

Huge technological changes mean a night at the movies doesn’t carry the same lustre as it once did. Streaming services like Netflix and Amazon Prime give viewers thousands of movies to choose from. Modern television sets, with their high definitions and huge screens also give consumers an excellent viewing experience.

In the short term AMC could struggle to attract customers due to the cost of living crisis too. The cost of admission isn’t as cheap as it once was. And sales of its expensive snacks and beverages — a huge revenues generator in their own right — could also slump as people cut back.

This is a particularly concerning scenario given the huge debts the business has on its books right now. Net debt was a whopping $5.5bn as of June.

Poor ticket sales could have serious implications on AMC’s ability to pay this back. And in the meantime the business is paying increasingly gigantic sums to service it as interest rates rise.

The verdict on AMC shares

The cinema industry faces more extreme difficulties in 2023 and beyond. And AMC’s massive debt levels adds even more danger for investors. I’d rather invest in less risky US and UK stocks right now.

The post AMC Entertainment shares: 5 reasons to buy (and not buy) in 2023 appeared first on The Motley Fool UK.

There can be many reasons why a stock goes down, but one that stands out to me is when a company loses market share and consequently doesn’t have the resources to compete any longer. This leads to weak business fundamentals, and often share-price declines.

Here are two entertainment stocks I think are in weak positions, and which I’ll therefore never consider buying for my portfolio.

AMC Entertainment Holdings

AMC Entertainment Holdings (NYSE:AMC) is the largest cinema chain in the world. It operates numerous multiplexes, including the Odeon brand in the UK. The stock went on a truly astonishing rise in 2021 as it was caught up in the meme-stock frenzy. From a low of around $2 in December 2020, its shares shot all the way to $59 just six months later, before subsequently losing 60% of their value. 

The main reason I wouldn’t buy AMC Entertainment is because I see the cinema industry continuing to be disrupted by streaming services such as Netflix and Disney. The company recently revealed that customers are spending less on snacks and beverages than they were before. If we enter a global recession, I don’t see this trend reversing. Plus, the company now has around $5.5bn worth of debt on the balance sheet!

Some investors may still like the stock because they believe that the cinema experience can never be replicated at home. However, I would argue that modern televisions and projectors — which are increasingly large, with surround sound systems and ultra-high definition — are more than a match for the big screen over the long term. Why go to the cinema when the cinema has essentially come to us in our own front rooms?

ITV

ITV (LSE:ITV) is the oldest commercial television network in the UK. The business is consistently profitable.

The company revealed its operating profit for 2021 was up 46% to £519m. That’s an impressive figure, I have to admit. And the shares do pay a dividend yield of 7%, so there are reasons for me to consider buying the stock.

The company has announced that it intends to spend £1bn a year on content for ITVX, its revamped streaming offering. The service will be free if you can put up with advertisements, otherwise you’ll have to subscribe. ITV shares dropped some 30% after this announcement. 

The main problem I see with ITV is that it is in direct competition for eyeballs with Apple, Netflix, Disney, YouTube, Amazon, social media and a wide range of gaming platforms. The strength and depth of this competition is the reason I won’t be buying this stock.

ITV does make some good content, but I’m sceptical that people will pay for a streaming service that’s traditionally been free. I also don’t think it has the budget or strength to successfully compete with the deep-pocketed giants of the streaming world already mentioned. In fact, I wouldn’t be surprised if ITV is soon swallowed up by one of them.

The post 2 stocks I will ‘never’ buy even with free money appeared first on The Motley Fool UK.

Reasons for the slump

Yesterday, the AMC share price dropped 15%, to close the day at $23.24. As mentioned above, this still represents an eight times return from a year ago. However, the stock has halved in value in the past month. I see a few reasons for this.

Firstly, profit taking. The rise of the share price this year has been from retail and institutional investors. For the latter, December is a period where trades usually get closed to tidy up the year. Particularly for hedge funds, for accounting processes, a lot of stocks will be sold (even if they get bought again in January). For retail traders, it might not be for accounting purposes, but to help fund Christmas presents or other needs!

Secondly, souring sentiment. This has come from a couple of different places. Partly it has come from insiders such as the CEO and CFO selling off large chunks of shares. Last week, CEO Adam Aron sold $9.65m worth of AMC stock. This had been clearly stated before it happened, but it’s still a negative for the AMC share price. 

Souring sentiment has also come from the rise of the Omicron variant. It’s still too early to know if restrictions will need to be put back on certain sectors. However, cinemas are a likely target to have restricted capacity in order to help stem the spread of the virus. In the event, this would hamper revenue for AMC in 2022.

Is the party over for the AMC share price?

Personally, I do think that the party is over for AMC. I think most investors deep down knew that the meteoric rise of the share price earlier this year was driven by speculation rather than fundamental reasons. Whatever the reason was, it didn’t stop some investors making high profits in a short space of time!

I think that some are realizing that speculative investors are moving on to new opportunities. I’d imagine some are looking to metaverse stocks instead.

Does the AMC share price really have good value, even at $23? Given the financial results recently, along with concern over operating under Omicron, I doubt it. Therefore, I won’t be looking to buy shares in AMC anytime soon. Rather, I’ll look to try and find the next key theme for 2022, that I think could be regarding the metaverse.

The post The AMC share price is collapsing! Is the party over for the meme stock? appeared first on The Motley Fool UK.