AMC Stock Is Down 90% But This Analyst Still Says It’s Not a ‘Buy’

In one year’s time, the stock of AMC Entertainment (NYSE:AMC), which currently operates 950 movie theatres and is the market leader in the U.S., plunged from nearly $90 a share to $7, losing about 90% of its previous value. What battered AMC’s stock could be distilled into one phrase: Covid-19. Afraid of catching a deadly disease, consumers stopped going out to movie theaters, preferring to stay home and watch via streaming services.

In fact, during the height of the pandemic in early 2021, AMC’s CEO Adam Aron was forced to close every AMC theatre, which covered 10,700 screens in 15 countries. Revenue plummeted, and AMC avoided bankruptcy four times by the end of that year.

The New York Times in a January 2021 profile said Aron was in such a difficult situation that some in the industry called him a “traitor” and others a “trailblazer.”

AMC Stock Emerges From Covid-19

Now that the pandemic has faded, many consumers are returning to see films such as Barbie, Oppenheimer, and Killers of the Flower Moon. Is AMC about to get a boost in its revenue and stock price?

Indeed, in its 2022 annual report, to recover its past strength, AMC’s strategy included 1) Expanding its footprint in new areas and closing underperforming theatres, 2) Looking for new opportunities to expand the AMC brand, 3) Exploring attractive acquisitions, 4) Increasing its Stubs loyalty programs, 5) Offering liquor and more meals at its food stands.

The company is beginning to show signs of bouncing back. In fact, in the second quarter of 2023, AMC’s total revenue spiked by 15.6% over the past year to $1.35 billion in the second quarter from April to June, beating the $1.29 billion expected by analysts, which included a 12% spurt in attendance.

But James Goss, a senior research analyst at Barrington Research in Chicago, isn’t sure that AMC’s stock price is about to revive. He lists AMC as “market perform” and doesn’t recommend investors buy shares.

Goss praised Aron for doing a relatively good job of helping to turnaround AMC. “Issues have less to do with its current success at the box office and more to do with its financial condition,” Goss cited. In fact, many individual investors have supported Aron’s efforts despite the stock dips over the last year. 

The Bottom Line

What’s weighing AMC stock down is “its significant amount of debt rather than how it’s doing at the box office,” Goss said. He pointed out that the “leveraged interest expenses significantly eat up most of what they take in.” Moreover, the writers’ and actors’ strikes will also slow down new movies coming to screens.

Goss acknowledged that “operationally [AMC] has significant pluses” with its many screens and IMAX theatres. But despite its low stock price, compared to its heights a year ago, Goss is not recommending the stock.

On the date of publication, Gary Stern did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.