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Larry Ramer of InvestorPlace reported AMC Entertainment (NYSE:CMA) results for the first quarter of 2022 on May 10. AMC beat analyst estimates on both the top and bottom lines. However, the company has done little to justify AMC shares continuing to trade in double digits if you look beyond the pace of earnings and revenue.
Down more than 3% at the start of trading on May 11, AMC’s stock price is heading towards the low single digits where it traded a year ago. Investors shouldn’t be surprised by the stock’s plunge. AMC’s problems run deep and no amount of rotation can change that.
If you’re considering buying AMC stock, at least do yourself a favor and wait for it to trade in single digits. Here’s why.
MKM Partners analyst Eric Handler believes the stock’s valuation is “irrational” despite the company’s initiatives such as delivering and selling its own brand of popcorn. It has a target price of $1 and a “Sell” rating on AMC shares. This target price has changed since February 2021.
MarketWatch reported that the analyst is concerned about the lack of mid-tier movies coming out. This reduced the volume of content in theaters by 30%.
“…Specific to AMC, it could take many years for the company to grow in its capital structure, which has seen a 400% increase in shares outstanding since the start of the pandemic with its prominent $5.57 [billion] debt “.
None of the eight analysts who cover AMC shares have it as a “buy”, with an average target price of $5.76, well below where it is currently trading.
As I said in April, the company’s acquisition of 66 screens in Connecticut, New York and Maryland will not make AMC a better company. More importantly, the price paid “adds to the company’s significant debt”.
I believe the company’s diversification strategy of investing in unrelated businesses – it paid $28 million for 22% of the Nevada gold miner Hycroft Mining (NASDAQ:HYMC) — will be a colossal failure.
The company should have used its $1.8 billion war chest from the stock issue exclusively to pay down debt. At the end of March, it had $1.16 billion in cash on its balance sheet, up from $1.59 billion at the end of December, while its debt was nearly $100 million higher at $5.52 billion.
AMC is rightly going in the wrong direction after earnings. It’s a stock stink.
As of the date of publication, Will Ashworth had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.
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