The entertainment industry has been put under strain amid the macroeconomic challenges. So, I think it could be wise to wait for a better entry point in Cinemark Holdings Inc. (CNK) for reasons discussed throughout this article. However, AMC Entertainment Holdings, Inc. (AMC) is best avoided considering its weak fundamentals.
Hollywood's recovery from months of lost work will be challenging due to juggling production schedules, availability of actors and crew members, and adjusting to new safety protocols to ensure project completion and resource availability.
Despite the revolution in cinematic engineering, Hollywood is concerned about the potential impact of AI technology on their industry, as it may replace human creativity and lead to job displacement in areas such as scriptwriting and post-production.
Also, inflation caused Americans to reduce their discretionary expenditure. The shift in customer behavior has reduced revenue for entertainment companies, including those operating in movie theaters, concert venues, and amusement parks.
As a result, AMC and CNK have faced significant challenges in maintaining their financial stability. AMC has been struggling with high debt levels and declining box office revenues, making it a risky investment choice. Additionally, the ongoing shift towards streaming services and the uncertainty surrounding the recovery of the movie theater industry further dampen the prospects for AMC.
Let’s delve into the fundamentals of the featured stocks.
Stock to Hold:
Cinemark Holdings Inc. (CNK)
CNK is primarily engaged in providing motion picture exhibitions. The Company operates through two segments: U.S. markets and international markets. It operates approximately 518 theatres and 5,847 screens in the United States, and Latin America.
CNK’s forward EV/Sales of 1.47% is 17.4% lower than the industry average of 1.78%, while its forward Price/Book of 5.85% is 239.2% higher than the industry average of 1.73%.
For the fiscal third quarter that ended September 30, 2023, CNK’s revenues increased 34.5% year-over-year to $874.80 million. Its operating income was $145.80 million, up 675.5% year-over-year.
However, as of September 30, 2023, CNK’s total assets stood at $4.81 billion compared to $4.82 billion as of December 31, 2022.
Analysts expect CNK’s revenue to increase 25.3% year-over-year to $3.08 billion for the year ending December 2023. Its EPS is expected to come in at $1.41 for the same period. Over the past year the stock has gained 6% to close the last trading session at $14.61. However, it has lost 14.2% year-over-year.
CNK’s POWR Ratings reflect this mixed outlook. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CNK also has a C grade for Momentum and Quality. It is ranked #2 out of 6 stocks in the Entertainment - Movies/Studios industry. Click here for the additional POWR Ratings for Value, Sentiment, Growth and Stability for CNK.
Stock to Sell:
AMC Entertainment Holdings, Inc. (AMC)
AMC engages in the theatrical exhibition business. The company owns, operates, and has interests in approximately 950 theaters and 10,500 screens worldwide.
AMC’s forward EV/Sales of 2.07% is 16.5% higher than the industry average of 1.78%. Its forward EV/EBIT of 138.17% is 774.5% higher than the industry average of 15.80%
AMC’s revenues for the fiscal second quarter that ended September 30, 2023, stood at $1.41 billion. Its operating costs and expenses increased 20.6% year-over-year to $1.31 billion. The company’s adjusted net loss and loss per share stood at $13.90 million and $0.09. As of September 30, 2023, AMC’s total assets stood at $8.79 billion compared to $9.14 billion as of December 31, 2022.
Street expects AMC’s EPS to come at negative $1.10 for the fiscal year ending December 2023. The stock has lost 90.5% over the past year to close the last trading session at $6.86.
AMC’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, translating to a Sell in our POWR Ratings system.
AMC is ranked last in the same industry. It has an F grade for Stability and a D for Sentiment and Quality. Beyond what is stated above, we’ve also rated AMC for Growth, Momentum and Value. Get all AMC ratings here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
CNK shares were trading at $14.65 per share on Monday afternoon, up $0.04 (+0.27%). Year-to-date, CNK has gained 69.17%, versus a 20.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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