Is AMC’s low price a trading opportunity?

AMC Entertainment Holdings, Inc., known for its iconic theaters and meme-stock status, has been a topic of much debate and speculation in the financial world this week, after shares dropped more than 80% of their value over the last month. Investors are closely watching its every move, hoping for the next big opportunity. So how low can it go, and will it rebound?

AMC suffered a massive decline beginning in June 2021,  when its stock price crashed from an all-time high of $461.37 (USD) to $31 by the end of 2022. Since then, the theater group has had several months of sideways action, but when talk of a 10-to-1 reverse stock split due on 24 August began to circulate, prices tanked.

The decline was exacerbated by the company's announced plan to sell up to a staggering 40 million additional common shares. Since the announcement AMC sentiment has been low, with prices falling 47.36% last week, from $13.64 to $7.18.

The reverse stock split tookdid indeed take place on 24 August, which could make the shares seem more affordable, and can also raise the stock’s liquidity. But most importantly, AMC will have the authorization to issue up to 550 million additional shares without further shareholder approval.  Some believe such a share expansion will boost stock prices to old-time highs, even though the move has a classic pump-and-dump signature. Long-term forecasting has many factors to consider.

Is it the end of the cinema era?

Revenue from AMC theatres isn’t solely generated by ticket sales — it includes other channels such as food and beverage. But if fewer people are going to the silver screen, then fewer people are eating and drinking too. Box office sales aren’t what they used to be.

In 2023, movie theaters in the United States and Canada managed to sell around 825.2 million tickets, which falls short when compared to pre-pandemic figures of nearly 1.23 billion movie tickets sold in 2019.

Simply, recent movie releases aren’t capturing people’s imaginations as they once did. Approximate grossing revenues for movies in 2021 hit around $21.3 billion after the lockdown slump. Last year they edged up to $26 billion. Thanks to Barbie, The Super Mario Bros, and Oppenheimer, box office sales are projected to hit $32 billion by the end of this year, which is still a far cry from 2018’s $41.1 billion and 2019’s $42.5 billion.

Unless more hugely popular hits are around the corner, the cinema industry will likely face further declines in all profit-generating channels. In this case, AMC stock, over the long term, may never recover. Keep that in mind the next time you hear about a hype.

Conclusion

Big TVs, the fast track to streaming, and people generally lowering their monthly costs, also play a role in diminishing the cinema industry. Similar to the forces behind the demise of video rental giant Blockbuster, we are seeing technology shifting societal habits, and the industry-leading megacompanies of today facing trouble.

AMC is a bargain at today’s price, and big investors may choose to dabble. But it seems unlikely that we’ll ever see anything to challenge the 2021 high. Updated numbers from the Financial Industry Regulatory Authority (FINRA), post-reverse split, will be released shortly which could provide some clarity regarding the stock's status.

Additionally, Consumer and Producer Price Index (CPI and PPI) numbers could impact the broader market, potentially affecting AMC as well. There’s a lot happening in the world, so consider digging deeper before simply buying AMC just because it’s cheap.

This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.

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Author:

Paul Reid

Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.