AMC Entertainment Holdings (AMC) has fallen out of favor with investors. The company was part of the meme stock frenzy of 2021, which saw it garner mass popularity among retail investors.
The stock has fizzled without their continued buying, falling 80% off its high. That said, AMC has an opportunity to bounce back if it can return to profitability and use the proceeds to pay down debt. Here are two steps for a rebound:
1. Stemming the losses on the bottom line
In its most recent quarter, which ended March 31, AMC reported $337 million in losses on the bottom line. That was despite revenue rising more than fivefold from the same quarter in the prior year, when -- through no fault of its own -- it was forced to shut down all its theaters temporarily due to the COVID-19 outbreak. It was a devastation it is still trying to recover from.
AMC net income (quarterly). Data by YCharts.
Those losses led to AMC losing $295 million in cash from operations in its most recent quarter. This is not sustainable for any business in the long run, so the company would like to turn this around sooner rather than later. Its cash balance fell to $1.16 billion as of March 31, down from $1.6 billion in the same quarter the prior year. If the theater operator can stop the losses on the bottom line, it will likely start boosting its cash balance. That scenario would give investors confidence that AMC has more time to recover to full strength.
There is hope it can accomplish this. In the weekend of June 9 to 12, its revenue surpassed the comparable weekend in 2019 for the first time since the outbreak. In 2022, three films have eclipsed $770 million in box office revenue, an excellent sign for AMC ahead of the popular summer moviegoing season.
2. Paying down long-term debt
AMC's second goal relies on accomplishing the first one. If it can start generating profits, then the first thing it should consider is paying down long-term debt. It holds $5.5 billion in long-term debt that is expensive to service. In the trailing 12 months, AMC paid $387.7 million in interest expenses.
AMC Net Interest Income (TTM) data by YCharts. TTM = trailing 12 months.
To put that figure into context, in AMC's best year of the last decade, it earned $310 million in operating income. By paying down its debt, the theater chain can lower interest expenses, making it easier to generate profits. The positive cycle could encourage investors by showing that the company is no longer in crisis mode. Growth investments could then become more viable.
Not an easy task
Admittedly, this will not be easy for AMC to accomplish. Revenue fell from $5.47 billion in 2019 to $1.24 billion in 2020, bouncing back only to $2.53 billion in 2021. It needs to double revenue again to reach 2019 levels -- a year in which it generated a loss per share of $1.44 anyway.
But if it achieves the two goals set out above, the stock could bounce higher.
