When we think about companies that have had incredible rallies in the last few years, many people will recall AMC (NYSE:AMC) stock. The cinema chain has had quite a ride in the stock market, especially since the onset of the pandemic. In the last year, its share has fluctuated within a pretty wild 52-week range of $7.05 to $91.50. So is there another rally in store?
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.
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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.
