Saturday, May 25, 2024

AMC Entertainment shares put on the theatrics

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With the return of ‘Roaring Kitty’ — analyst Keith Gill — to social media, the top trending meme stocks have come soaring back into fashion. While GameStop is clearly the most well-known share, AMC Entertainment is currently the most trending stock on Reddit by most metrics and is arguably the second most famous meme stock at present.

AMC Entertainment shares: what’s going on?

On Monday, Gill posted a cryptic meme of a gamer in a chair leaning forward — enough to send GameStop, AMC and several other meme stocks higher — including several trading halts. We have already summarized the facts here, but the takeaway is that the man responsible for the original 2021 meme stock volatility is back.

And for some perspective, AMC shares were changing hands for less than $3 apiece last week, surged to as much as $6.85 on 14 May, and have since dropped back to $4.91.

It’s worth noting that AMC remains the largest cinema chain in the world, including the pole position in the US by some distance. While the share price movement is clearly detached from the fundamentals, it is by no means a minnow.

But all it took to more than double the share price is some tweets from Gill — with no further investment analysis.

Quarterly results

In Q1 2024 results, revenue came in at $951.4 million compared to $954.4 million for Q1 2023. However, the net loss improved to $163.5 million compared to a net loss of $235.5 million for the same quarter the year before. And the chain had cash and equivalents of some $624.2 million at the end of March.

Chairman and CEO Adam Aron enthused that ‘AMC exceeded consensus estimates for Revenue, Adjusted EBITDA, Net Income, and Diluted Earnings per share…while the second quarter box office will continue to be affected by the 2023 Hollywood strikes, we continue to be ebullient about the upcoming film lineup in the second half of 2024 and throughout 2025.’

It’s worth noting that despite the actor and writer strikes in 2023, North American box office revenue only fell by 6% in the quarter — and AMC grew its domestic market share and ‘continued to grow (its) per patron profitability metrics at levels well above pre-pandemic measures.’

While debt remains a key issue, the company has now reduced its principal balance of debt and deferred rent by more than $974 million since January 2022 — as well as raising significant amounts of cash by placing shares.

Where next for AMC shares?

AMC has just raised roughly $250 million in new equity capital, completing the sale at the same time as Gill made his comeback. It sold 72.5 million shares in an at-the-market equity offering that it launched on 28 March. AMC sold that stock at an average price of $3.45 per share (before commissions and fees).

The company is of course entitled to generate the cash it needs to continue its turnaround strategy — but the significant dilution, on an index where share buybacks are perhaps more common than placings — may serve to keep a lid on the stock’s price once the volatility dies back down.

However, like GameStop, AMC Entertainment shares do not appear to be trading on fundamentals. Instead, the stock is rising and falling on swift-changing sentiment. This creates conditions for traders and investors to potentially generate large profits in short periods, but with the caveat that the risks are correspondingly magnified.

And unlike most other market participants, predicting where the AMC needle will swing next is perhaps more art than science.

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