Please ensure Javascript is enabled for purposes of website accessibility

AMC Entertainment in 5 Charts

By Jason Hawthorne - Jun 4, 2021 at 6:10AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Only one number is going in the right direction -- and it can't last.

One of the most interesting ways to use data is to show how society changes over time. From the median size of homes to the percent of dual-income families, numbers show us how what we consider normal may change drastically over time.

AMC Networks (AMC -6.58%) has been stuck in the crosshairs of one of those changes for the past two decades. As home theaters and streaming services have become ubiquitous, the traditional movie theater experience is a thing of the past for many. Despite many metrics showing a business pointing in the wrong direction, the stock has skyrocketed. Shareholders may want to hurry and cash in on the anomaly while it lasts. These five charts indicate the disconnect from reality won't last. 

People sitting in a movie theater eating popcorn.

Image source: Getty Images.

Streaming has skyrocketed

Netflix's consistent growth in subscribers over the past decade indicates a huge problem for the theater industry. It's much easier to pick up a remote in sweatpants than get dressed and drive to a theater. In 2014, a survey showed 57% of Americans would rather stay home than go to the movies. Only 21% said they prefer the experience of going to a movie theater. By 2020, the number was 70%.

Add in the decision by Warner Bros. to stream all new movies through HBO Max in 2021 and it's not an overreaction to think a night out at the movies could become a thing of the past.

A chart showing subscribers climbing every year for the last decade.

Data source: Netflix.

Ticket sales are stagnant

During the 1918 influenza pandemic, people desperately missed going to the movies. Theaters only closed for a few weeks, but motion pictures had become an important part of peoples' lives. More than a century later, it's hard to make the case that theaters were missed as much. Ticket sales have been drifting downward in the U.S. and Canada for nearly two decades.

A 2017 study found the most prolific moviegoers were between 12 years old and 24 years old. Those cash-strapped consumers aren't typically the most sought-after cohort. Adding insult to injury, purchases fell off a cliff as theaters were closed throughout both countries for much of last year.

A graph showing movit ticket sales in the U.S. and Canada stagnating in the decade before the pandemic.

Data source: Statista.

With COVID-19 still circulating, and many AMC theaters still closed or only allowing a fraction of the seats to be filled, attendance has been abysmal. In the company's first quarter, it was down 84% and 97% in the U.S. and abroad, respectively.

An acquisition boosted revenue

Until last year, sales appeared to have held up well for AMC. That's because the company acquired Nordic Cinema Group in 2017. With the deal, AMC became the largest operator in the U.S., Europe, and worldwide. The move buoyed sales but the additional scale hasn't translated to profits. That was true even before the pandemic.

AMC Revenue (Annual) Chart

AMC Revenue (Annual) data by YCharts

For 2020, AMC's sales understandably cratered. Revenue was down 77% for the year and the first quarter of 2021 looked even worse, down 84% year over year.

Sales aren't providing the advantages of scale

AMC hasn't been able to squeeze out more profit from the larger operation and additional sales. In fact, operating income has oscillated between $200 million and $300 million since 2015. That was during a stretch when sales rose 85%. Operating cash flow only rose 24% during that time.

AMC Operating Income (Annual) Chart

AMC Operating Income (Annual) data by YCharts

With sales tanking last year, expenses overwhelmed the company. Operating income registered an eye-popping negative $1.54 billion in 2020. The continued partial opening -- if that -- kept the year-over-year profit metrics deeply in the red for the first quarter. In those three months, AMC posted a net loss of $567 million and burned $313 million in cash.

The stock price does not make sense

Despite the general disdain for going to the movies, partial or full closure of many theaters, and the dismal operating metrics, shareholders have been richly rewarded. In fact, the stock is up 3,000% so far this year. That flies in the face of much of what most of us were ever taught about investing. Many financial bubbles are accompanied by the words "this time it's different." That's unlikely to be true this time.

AMC Chart

AMC data by YCharts

It all ends badly

In the five years before the pandemic, AMC Entertainment's price-to-sales ratio fell from around 1.0 to 0.15. It currently trades for 25-times sales. Even using normalized revenue for a post-pandemic recovery, AMC is an incredible five times 2019 sales. That's 33 times more expensive than it was before COVID-19. 

To management's credit, it is using the opportunity to raise capital and offering a caveat. On Thursday, the company announced it would sell 11.55 million shares and cautioned investors that the current stock price was not in line with its underlying business. The release also warned that anyone buying those shares should be prepared to lose all or a substantial portion of the investment. Based on business performance and historical valuations, it seems like they should expect to eventually lose it.

No one knows how high the stock could rise before then. To reference Stranger Things -- one of the most popular streaming shows of the past few years -- investing in 2021 feels like we're in the upside down. Maybe we'll never get out.

Jason Hawthorne has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
$18.02 (-6.58%) $-1.27
Netflix, Inc. Stock Quote
Netflix, Inc.
$241.16 (-1.64%) $-4.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/20/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.