AMC Entertainment (NYSE: AMC) stock price has collapsed to a record low as concerns about the Box Office industry, high debt load, and potential for dilution rose. It has slipped by more than 26% in 2024, lagging the broader market as the S&P 500 and Nasdaq 100 indices have surged to a record high.
Dilution risks remainAMC Entertainment is in trouble. It has over $4.5 billion in long-term debt, with two-thirds of it coming due by 2026. It also has a substantial negative working capital, defined as current assets minus current liabilities.
The most recent results showed that its current assets stood at $1.25 billion against $1.6 billion in current liabilities. This brought its working capital to minus $400 million, and the situation could get worse.
The biggest challenge for AMC Entertainment is that the box office industry is not doing well. On a positive side, Dune 2 has done well in the Box Office. It has grossed over $108 million in the past two weeks in the United States. It has brought in over $350 million globally.
Still, the challenge is that the movie roaster for 2024 is significantly weaker than in 2023. Movie attendance is also significantly lower than in the same period in 2023. The situation could worsen because of weaker comparisons later this year.
As you recall, movie attendance jumped sharply last week because of the Barbie, Oppenheimer, and Eras Tour by Taylor Swift. The chances of a similar performance this year are relatively low. Some of the most notable movies scheduled for this year are Godzilla vs. Kong, Ghostbusters, and Kung Fu.
Therefore, if this is correct, it will almost be impossible for AMC to beat its 2023 revenue. The company made over $4.36 billion in 2023, up from $3.5 billion a year earlier. Its net loss narrowed to $396 million in 2023. Analysts expect that its revenue will be $4.49 billion in 2024 and $5.12 billion in 2025.
AMC Entertainment’s situation is still dire. However, the management has done some progress, albeit at the cost of investors who have gone through a major dilution.
The company has reduced its debt burden to $4.56 billion, about $451 million lower than where it was four years ago. It also has substantial cash on hand of approximately $884 millon. These funds came from its substantial capital raises.
Is it safe to buy AMC Entertainment stock?
Therefore, fundamentally, AMC Entertainment is clearly in a rough patch and the situation could get worse this year. The worst-case scenario is where the management decides to raise additional capital.
In my last article, I argued that AMC was still a high-risk and high-reward environment. The worst-case scenario is that the stock plunges to zero as the company files for bankruptcy. I believe that this will not happen.
Analysts have a target stock price of $5.02, representing a 16.7% upside. In an era where worthless meme coins like MEME and Bonk are surging, I believe that the stock could go through a short squeeze this year.
Such a move will likely see the stock jump sharply as we saw in early 2021. More upside could see it surge to $11.45, its highest swing in November last year.
In this case, I have allocated some cash in AMC. In the worst-case scenario, I am willing to lose this cash. At the same time, the upside could be epic if the stock rebounds this year.
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