Historically, it's been a bad bet to warm up to AMC Entertainment (AMC 2.15%) after a rally. Chasing shares of the leading multiplex operator higher often ends in heartbreak. It didn't work out well for speculators who chased AMC higher in 2021, when it was one of the two leading meme stocks. AMC has plummeted by a split-adjusted 99.6% -- that's not a typo -- from its frenzied peak four summers ago.
You can't blame AMC for the crowdsourced bidding up of the stock in 2021, but every cruel timeline after that is largely the handiwork of AMC's own mismanagement. Rival Cinemark (CNK 1.54%) turned profitable two years ago and hasn't looked back. AMC is almost there on the bottom line, but the stock has fallen 94% over the past two years. Cinemark, on the other hand, has risen 45% in that same time. Screening experience supersizer Imax (IMAX 0.08%) has climbed 30% in those same two years.
It's not movie theater stocks that are failing now that the pandemic is fading in the rearview. This is just the case for AMC, as poor management decisions that diluted shareholders and a lack of cost controls have plagued investors. AMC's blowout second-quarter this week offers an opportunity to rally, even if Monday's results amounted to a modest 3% uptick. The gains haven't lasted before, but maybe this time AMC can flip the script.
Reel potential
AMC's financial update on Monday morning warranted more than a token bump higher. Analysts were targeting a loss of $0.08 a share on a 30% increase in revenue following a strong second quarter at the box office. The bar was high, but AMC rose higher. Its nearly $1.4 billion in revenue was a 36% increase, as a 26% jump in attendance was enhanced by folks paying up for premium-priced screening experiences and spending more at the concessions stand.
The bottom line is an even better story. I had predicted that AMC could surprise investors with an actual profit on Monday, and I didn't miss by much. AMC posted a net loss of $4.7 million. Its adjusted net loss was $0.5 million, technically $0.00 on a per-share basis, but technically not breakeven results. AMC's adjusted deficit a year earlier clocked in at $137.9 million. Turning to adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), it was not only positive but also a nearly fivefold improvement.
AMC isn't just turning the corner. It can literally see beyond the bend now.
Image source: Getty Images.
AMC finally has the opportunity to exhale. However, AMC may not look its post-pandemic best, considering it was profitable two summers ago and the current quarter could be a dud. Analysts also see a widening loss on a 2% year-over-year decline in revenue, and domestic box office receipts are currently 9% below where they were at this point in the third quarter of last year -- and 18% below where they were two years ago at this point.
This is not a pretty picture, but thankfully it's a moving picture. Analysts see revenue growth returning in the fourth quarter, fueled by a strong slate of blockbusters. There's a good chance AMC turns a profit in the fourth quarter, something it hasn't done since 2018.
AMC has upside here -- pent-up upside. Cinemark may be profitable and even shells out a quarterly dividend now. Imax and Cinemark are trading at compelling forward earnings multiples in the low to mid-teens. But AMC could still crank out the stronger return in the next year or two as it takes steps in the right direction.
AMC served up positive free cash flow in the second quarter, meaning there's no reason to bludgeon shareholders with dilution anymore. Audiences are smaller in number on this end of the COVID-19 crisis, but they're willing to pay more for a reserved seat at their local AMC. They're also splurging for widened menu offerings and clever release-specific merchandise. Entertainment stocks offer escapism, and that's not going out of style anytime soon. Momentum has arrived before the bulls got seated, and that's not a bad thing.
AMC is back. The stock chart just doesn't know it yet.
