It’s fine if the “Apes” want to root for AMC Entertainment (NYSE:AMC). However, investors should consider all of the relevant facts, including the unpleasant ones. Thie year’s meme-stock trend wasn’t meant to last forever, and AMC stock only earns a “D” grade as it’s susceptible to volatility and drawdowns in the year’s second half.
To be fair and balanced, we’ll acknowledge the cinematic offerings that could give AMC Entertainment’s bottom line a boost. At the same time, AMC Entertainment’s financial security is far from assured. We won’t predict bankruptcy in the immediate term, but AMC Entertainment’s debt burden is nonetheless a long-term concern.
AMC Entertainment Needs More Blockbuster Films
There’s no denying that AMC Entertainment is having success with some recent films. Some notable revenue generators include Inside Out 2 and Bad Boys: Ride or Die, as well as A Quiet Place: Day One.
AMC Entertainment might be able to maintain its momentum with more blockbuster hit films. That’s a reason to assign AMC Entertainment stock a “D” instead of an outright “F” grade. Yet, there’s no guarantee that this will happen.
Also, AMC Entertainment made a savvy move during the mid-May meme-stock rally. The company completed a large-scale share sale while the stock price was elevated.
Of course, it raises share-value dilution concerns when a company issues large numbers of shares. Besides, this year’s meme-stock rally may have been a one-off event, or at least a rare one. In other words, AMC Entertainment can’t count on meme-rally share-sale opportunities happening again and again.
Is Bankruptcy ‘Inconceivable’ for AMC Entertainment?
AMC Entertainment CEO Adam Aron believes it’s “inconceivable that AMC would have to restructure like Regal Cinemas did and file for Chapter 11.” However, investors shouldn’t assume that bankruptcy/restructuring/reorganization can never happen for AMC Entertainment.
Despite negotiating with lenders and capitalizing on May’s meme pump, AMC Entertainment still has an enormous debt load. And, to borrow a thought from InvestorPlace contributor Thomas Niel, this “high debt position leaves the ‘saga’ surrounding shares at risk of reaching the ‘final chapter.’”
Niel further warned, “If AMC were to enter Chapter 11, it would almost certainly lead to a total wipeout for anyone holding the company’s common stock.” We’re not trying to scare you — unless a good scare is what you need to steer clear of AMC Entertainment.
InvestorPlace contributor Eddie Pan calculated that AMC Entertainment’s first-quarter 2024 cash burn was $238 million. That’s startling, as AMC Entertainment’s cash balance was $624.2 million as of March 31.
Moreover, according to FactSet data (via Barron’s), AMC Entertainment had $8.6 billion worth of long-term debt as of December 2023. That figure may be slightly smaller after the meme-rally share sale, but it’s still undoubtedly large and AMC Entertainment has to pay interest on all of that debt.
AMC Stock: Don’t Expose Your Wealth to Undue Risk
We’re not suggesting that AMC Entertainment will definitely issue a “going concern” warning in the immediate future. Yet, investors can’t afford to disregard AMC Entertainment’s cash burn and hefty debt load.
It’s still possible that AMC Entertainment will continue its run of blockbuster film releases. Even with that possibility, however, AMC Entertainment may have difficulty meeting its financial obligations in a timely manner. Consequently, we’re assigning AMC stock a “D” grade are aren’t giving it a confident recommendation today.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.