The biggest cinema chain AMC Entertainment (NYSE:AMC) suffered the most due to the pandemic. Despite raising funds and securing the company to declare bankruptcy, he could not see light at the end of the tunnel. Due to the constraints on the closure and movements, most of its locations had to limit or turn off the capacity. This had a major impact on the AMC share.
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AMC has the largest stake in the US theater industry. The AMC stock hit a low of $ 2.10 and has recovered more than 75% since then. Due to the short print activity, the stock reached the $ 20 level and is lower again. It is currently exchanging hands for $ 10. I believe the stock will see a major downside in the coming months.
The Q4 results were disappointing with losses and a large debt burden. It will certainly take a lot of time for AMC to return to the revenue and growth levels that have been prioritized. The company may survive the pandemic for a short time, but the long-term outlook does not look promising. Let’s look at my investment case for AMC shares.
Disappointing Q4 results and growing debt
For the Q4 results, the company reported a loss of $ 1 billion during the holiday period. Sales amounted to $ 162.5 million and decreased by 88% compared to the same quarter last year. The loss for the fourth quarter was $ 946.1 million, up from $ 14 million in the previous year. These numbers clearly show that AMC could not handle the pandemic well.
With a loss of $ 3.15 per share, Q4 sales reached $ 1.24 billion, a sharp drop of $ 5.55 billion in 2019. Despite theaters closing in most places, spending has remained the same. There was no decline in operating expenses from the previous year, and interest rates on corporate loans rose in 2020.
AMC has a growing mountain of debt. It has a debt of $ 6 million and has raised more cash by issuing shares. The company was able to deal with the fear of bankruptcy by issuing shares. It had a cash infusion of $ 917 million and issued an additional 164.7 million shares. This debt has an interest rate of 15%. Even if the company earns earnings in the coming months, it will have a lot of pressure due to the interest liability.
The dynamics in the industry have changed over the past year. People prefer to stay at home and enjoy their favorite movies via streaming platforms. This will be a big blow for AMC. Studios prefer to release the movies simultaneously on a streaming platform and a theater. The company is heavily dependent on creators for new films and exclusive rights. If demand for streaming platforms continues to rise, AMC’s business model could be jeopardized. This will have a negative effect on the AMC share.
The core of AMC shares
Theaters opened in New York City, but they did not attract many viewers. With the deployment of vaccines and the gradual opening of public places, some top releases are expected to attract the audience. But it can take time. We are not yet completely safe and people will not be willing to go to the theaters without knowing the vaccine status of the others in the theater.
AMC has a tough ride ahead and the debt burden is slowing growth. Even if the theaters reopen elsewhere, it will be difficult to reach the pre-cultivated growth level. AMC shares look too high at current levels of income and debt. I think it’s best to stay away from the stock for now. This will decrease further in the coming months.
At the date of publication, Vandita Jadeja (directly or indirectly) did not hold any positions in the securities mentioned in this article.