With a YTD rise of almost 1,600%, AMC entertainment stock is among the best-performing stocks of the year. However, it trades at less than half of the all-time highs that it reached earlier this year. What’s the forecast for AMC stock and should you buy the dip?

AMC stock has been popular on Reddit group WallStreetBets. Along with GameStop, it is among the meme stocks where retail traders got the best out of hedge funds and Wall Street pros. Hedge funds have lost billions shorting both these stocks and Melvin Capital almost went bankrupt betting against GameStop.

AMC Entertainment earnings

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AMC Entertainment released its second-quarter earnings yesterday. The cinema chain company reported revenues of $444.7 million in the quarter which were way above the $382.1 million that analysts were expecting. The company’s loss per share of 71 cents was also narrower than what the markets were expecting.

AMC Entertainment’s business has rebounded from last year’s lows and it welcomed 22 million guests in the quarter across all its cinemas. The company raised $1.25 billion cash by selling shares in the quarter and ended the quarter with $2 billion in liquidity which is the highest in the company’s history. The cash is the lifeline for the cinema chain company given its cash burn.

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Adam Aron

“We believe this gives AMC financial staying power to navigate boldly amidst coronavirus waters,” said AMC’s CEO Adam Aron. He had a word of caution though and said “AMC’s journey through this pandemic is not finished, and we are not yet out of the woods.” He also added that the company is “playing on the offensive again.”

AMC was also looking at authorization from shareholders to sell another 25 million shares in the quarter. However, retail traders thwarted the attempts. Retail shareholders now own the majority stake in the company as many institutional investors have cashed out.

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How Wall Street reacted to earnings

Wall Street analysts are bearish on the stock and none of the brokerages has a buy rating. “Relative to our estimates, AMC reported more average open screens, higher global attendance, and higher per-caps across the board. Pent-up demand in its markets coupled with aggressive marketing to its patrons drove moviegoers to its screens,” said Wedbush analyst Alicia Reese. The brokerage has a neutral rating on the stock.

Meanwhile, there are several risks that AMC faces. The most near-term risk is the rising cases of coronavirus in the US which could hamper the recovery in names like AMC. Also, the company’s valuation is way above the pre-pandemic levels which sound intriguing given how badly the business was impacted by the pandemic. Given the long-term impact of streaming, AMC will find it hard to post pre-pandemic profitability given the structural shift from movie-going to streaming.

Loop Capital reiterated its sell rating on AMC stock

Loop Capital echoed similar views and analyst Alan Gould reiterated his sell rating on the stock. “We now believe the domestic box office will be less than $5 billion this year, and our base case assumes $8.5 billion next year and less than $10 billion in 2023. Under that scenario, we think it will be a challenge for AMC to generate adjusted EBITDA within 10% of what it earned pre-pandemic; yet the enterprise value has almost tripled,” said Gould in his note.

AMC stock forecast

There are some positives also for AMC stock. For instance, there would be some consolidation in the industry as some of the smaller cinema chains have closed during the pandemic. AMC would end up strengthening its position as the world’s largest cinema chain company and would gain more market share. Also, it has built a loyal shareholder base and many of them would also become loyal customers. The company is also providing free popcorns to shareholders at the cinemas.

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Technical analysis

AMC stock has found strong support at the 100-day SMA and rebounded sharply from the levels. It also trades above the 200-day SMA. However, the stock needs to rise above the 50-day SMA to signal a new uptrend.

AMC long term forecast

Wall Street analysts don’t expect AMC Entertainment to reach 2019 revenue levels even by 2022. The company is expected to post a massive EBITDA loss of $476 million in 2021 but is expected to post a positive EBITDA of $550 million next year. Even if analysts’ estimates are true, the EBITDA would be way lower than what it posted before the pandemic.

AMC also has a massive debt pile to serve and the total liabilities are almost $11 billion. The company also has a negative book value per share. The stock trades at an NTM (next-12 months) EV-to-sales multiple of 6.3x which looks pretty high for a cinema chain company. It’s difficult to build a buying case for the meme stock given its high valuations.

That said, AMC looks like a good day trading stock. It was trading higher in early price action today as markets gave a thumbs up to its earninsg beat.

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About Mohit PRO INVESTOR

Mohit Oberoi is a freelance finance writer based in India. He has completed his MBA with finance as majors and also holds a CFA charter. He has over 14 years of experience in financial markets. He has been writing extensively on global markets for the last seven years and has written over 7,500 articles. He covers metals, electric vehicles, asset managers, tech stocks, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.

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