AMC Entertainment Holdings Inc. (AMC) is the world's largest movie exhibition company, with approximately 950 theaters and 10,500 screens across the globe. The company's shares have soared 843.6% over the past year amid a meme stock frenzy.

However, the stock has plunged 48.7% over the past three months and 16% over the past month, closing the last trading session at $20.57. In addition, it is currently trading 71.7% below its 52-week high.

According to a regulatory filing, AMC Entertainment CEO Adam Aron has unloaded yet another trove of shares in the movie theater company last week. Aron reported that he sold another tranche of AMC shares worth $7.1 million. And since November, Adam Aron has sold almost $40 million in stock. This could raise investor concerns surrounding the stock's future performance.

Here's what could shape AMC's performance in the near term:

Increasing Competition

Online streaming services have yet again taken over the entertainment space as people avoid crowded theaters amid the resurgence in Covid-19 cases. AMC faces strong competition from online streaming service providers such as Amazon.com, Inc.'s (AMZN) Prime Video and Netflix, Inc. (NFLX). In addition, according to ReportLinker, the global market for OTT Devices and Services is estimated to reach $217.50 billion by 2026, at a CAGR of 18.3%.

Disappointing Financials

AMC's revenue increased 538.7% year-over-year to $763.2 million for the third quarter ended September 30, 2021. However, its operating loss came in at $145.2 million. Its operating expenses rose 14.3% year-over-year to $908.4 million. The company reported a net loss of $224.2 million, while its loss per share came in at $0.44 over this period.

Weak Profitability

AMC's trailing-12-months asset turnover ratio of 0.14% is 70% lower than the industry average of 0.46%. Also, its ROC, gross profit margin and net income margin are negative 9.2%, 42.1%, and 137%, respectively. Furthermore, its trailing-12-month cash from operations stood at a negative $1.02 billion compared to the industry average of $360.92 million.

Consensus Rating and Price Target Indicate Potential Downside

Of the four Wall Street analysts who rated AMC, two rated it Sell. The 12-month median price target of $8.17 indicates a 60.3% potential downside. The price targets range from a low of $1.00 to a high of $16.00.

POWR Ratings Reflect Uncertainty

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

Our proprietary rating system also evaluates each stock based on eight different categories. AMC has an F grade for Stability and Sentiment. The stock has a beta of 1.25, which is consistent with the Stability grade. In addition, unfavorable analyst estimates are in sync with the Sentiment grade.

The stock also has a D for Quality which is justified given the company's weak financials and poor profitability.

Of the nine stocks in the F-rated Entertainment – Movies/Studios industry, AMC is ranked #8.

Beyond what I've stated above, you can view AMC ratings for Value, Growth, and Momentum here.

Bottom Line

Although investor optimism surrounding the recent release of the new Spiderman movie and AMC's meme stock status has helped its shares surge significantly over the past year, the shares are currently trading 71.7% below their 52-week high of $72.62. Furthermore, the stock is currently trading below its 50-day and 200-day moving average of $31.42 and $33.62, respectively, indicating a downtrend. So, we believe the stock is best avoided now.

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

AMC has an overall POWR Rating of D, which equates to a Sell rating. While currently there are no stocks in the Entertainment - Movies/Studios industry with an A (Strong Buy) or B (Buy) rating, you might want to consider taking a look at Lions Gate Entertainment (LGF.A), Warner Music Group (WMG), and Imax Corporation (IMAX), which are rated C (Neutral).

AMC shares were trading at $17.94 per share on Tuesday afternoon, down $2.63 (-12.79%). Year-to-date, AMC has declined -34.04%, versus a -3.89% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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