AMC Entertainment Group (AMC -0.88%) is steadily rebounding from the forced shutdown of its business at the pandemic's onset. The international movie theater chain had one of its best weekends since before the outbreak, buoyed by the return of blockbuster films.
This comes on the heels of AMC's rampant overvaluation when meme stock investors piled in and caused the stock price to jump. Given that backdrop, let's consider AMC's prospects, weigh them against its valuation now, and determine if investors should buy or sell.
AMC's recovery has not been enough yet
The magnitude of the harm that the pandemic caused to AMC's business was dramatic. Revenue fell by 77% in 2020 to $1.2 billion from $5.5 billion the year before. Through no fault of its own, it was forced to close its doors to moviegoers for a substantial part of 2020. Since bringing people into movie theaters was responsible for nearly all its sales, cutting off that source was catastrophic.
Fortunately, several effective vaccines against COVID-19 were developed, making people comfortable enough to revisit theaters. AMC's revenue jumped by 103.5% in 2021 to $2.5 billion. However, the boost left AMC's total revenue at less than half the sum in 2019 before the outbreak. It wasn't until the recent weekend of June 9 to June 12 that AMC reported revenue ahead of the comparable time in 2019.
During the weekend mentioned above, AMC's revenue was 15% higher than the same weekend in 2019. Partly due to hit films Jurassic World Dominion and Top Gun: Maverick, 4.9 million guests watched a movie at an AMC location. While this is excellent news for the movie theater chain, it is by no means an indication it is in the clear. It needs to sustain this performance for an entire quarter, then several quarters in a row. Furthermore, it needs to show that it can stop losses on the bottom line.
AMC Cash from Operations (Quarterly) data by YCharts
In its most recent quarter, which ended on March 31, revenue exploded more than fivefold from the same quarter the year before, to $786 million. Yet, it wasn't nearly enough for the company to sustain itself as it reported net losses of $335 million in the same quarter. Similarly, cash from operations was a negative $295 million. Altogether, the company's cash balance fell to $1.165 billion from $1.6 billion.
Its cash balance was bolstered during the meme stock frenzy of 2021 when it could sell stock to the public at high prices, an option unlikely to arise again. Meanwhile, its $5.5 billion in long-term debt is a ticking timebomb waiting to explode. When the principal amounts come due -- which will be as soon as 2026 -- AMC must either make the payments in whole or hope to refinance to extend the due dates.
Investors can sell AMC stock
AMC PS Ratio data by YCharts
AMC's stock is trading at a price-to-sales ratio of 2, considerably higher than before the outbreak. Although the theater chain's prospects are slowly improving, it is no reason to buy the stock. On the contrary, if you own AMC stock, you can feel good about selling now. Sales recovery is not happening fast enough to stop losses on the bottom line.
Even if it recovers enough to turn profitable again, an uncertain prospect, the reward to investors is not worth taking that risk.
