Shares of the largest theatrical exhibitor, Leawood, Kans.-based AMC Entertainment Holdings, Inc. (AMC) surged nearly 23% in price on Dec. 17 thanks to its highest December night opening ever with a record 1.1 million people attending the premiere of ‘Spider-Man: No Way Home.’

Its total revenues increased 538.7% year-over-year to $763.20 million in the third quarter (ended September 30, 2021). Its net loss came in at $224.20 million compared to $905.80 million. However, its negative $5.40 million adjusted EBITDA was well below pre-pandemic levels. The stock has declined 30.9% in price over the past month and 34.1% over the past three months to close Friday’s trading session at $29.12.

AMC faces intense competition from online streaming service providers, such as Amazon.com, Inc.’s (AMZN) Prime Video and Netflix, Inc. (NFLX). Also, its shares have retreated  as the meme stock frenzy has ebbed amid broader market volatility and a lower appetite for risky assets. So, its near-term prospects look bleak.

Here are the factors that could influence AMC’s performance in the upcoming months:

Increased Insider Selling

According to Form 4 filings with the Securities and Exchange Commission, AMC’s CEO Adam Aron sold 312,500 shares on December 7 at $30.87 to raise $9.65 million. According to a filing, the company’s CFO Sean Goodman sold all of his 18,316 shares for roughly $565,000. In addition, AMC executives and board members have unloaded more than $70 million in shares this year. These moves have fostered  investor pessimism in the stock.

Low Profitability

In terms of trailing-12-month gross profit margin, AMC’s negative 42.08% is lower than the 51.66% industry average. The stock’s trailing-12-month levered FCF margin is negative versus the 11.40% industry average. Furthermore, its negative trailing-12-month ROTC and ROTA are lower than the industry averages of 4.42% and 3%, respectively.

Unfavorable Analyst Estimates

Analysts expect AMC’s revenue to increase 88.7% year-over-year to $4.69 billion in its fiscal 2022. However, the company’s EPS is expected to remain negative this year and next year. Also, its EPS is expected to decline at a 217% rate per annum over the next five years. In addition, Wall Street analysts expect the stock to hit $8.17 in the near term, which indicates a potential 71.9% decline.

POWR Ratings Reflect Bleak Prospects

AMC has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AMC has a D grade for Sentiment, which is consistent with unfavorable analyst sentiment.

The stock has a D grade for Quality, which is in sync with its lower-than-industry profitability ratios. And it has an F grade for Stability, which is consistent with its beta of 1.33.

AMC has an F grade for Value. This is in sync with its forward EV/S and P/S of 9.67x and 5.96x, respectively, which are higher than the industry averages of 2.50x and 1.73x.

AMC is ranked #7 out of 9 stocks in the F-rated Entertainment - Movies/Studios industry. Beyond what I have stated above, we have also given the stock grades for Growth and Momentum. Click here to get all of AMC’s ratings.

Bottom Line

Although investor optimism surrounding the new Spiderman movie helped AMC’s shares surge in the last trading session, the shares are currently trading 59.9% below their 52-week high of $72.62, which they hit on June 2, 2021. Furthermore, AMC’s EPS is expected to remain negative in the coming months. So, we think the stock is best avoided now.

How Does AMC Entertainment (AMC) Stack Up Against its Peers?

While AMC has an overall POWR Rating of D, currently, there are no stocks in the Entertainment - Movies/Studios industry with an A (Strong Buy) or B (Buy) rating. The other three industry participants Cinedigm Corp. (CIDM), Warner Music Group Corp. (WMG), and Imax Corporation (IMAX), are rated C.

AMC shares fell $0.74 (-2.54%) in premarket trading Monday. Year-to-date, AMC has gained 1,239.62%, versus a 22.62% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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