AMC Stock Has Done Enough, Take the Conservative Approach

Personal opinion on where AMC (NYSE:AMC) stock is headed largely depends upon investment style. Both camps are correct.

For traders, there’s many reasons to believe that AMC shares could move upward quickly again at any given time. Simply glance over its price chart movement throughout this year and there’s little arguing that AMC has been anything but explosive. 

It has gone from $2 to $55 year-to-date appreciating by an astounding 2,650% in that period. And during that run up it has seen multiple instances during which it doubled and even quadrupled in the span of 24 hours. Bullish traders have every reason to believe that shares could make them rich overnight. You really can’t argue against the potential. 

Investors with a long-term strategy, like me, will simply point to the fundamental indicators for AMC. The picture that they paint is clear: AMC stock is in big trouble. 

Choose The Conservative Approach

The conservative approach is the one that considers where AMC is going based on its fundamentals.

Before even diving into those results, let me share something with you. As I searched around for AMC’s latest earnings release something was abundantly clear: The company doesn’t make it easy to access its Q1 results. 

The link is buried in text which isn’t highlighted. Once you find that, you then have to dig deeper just to get into actual numbers regarding its business. I’m implying of course that AMC doesn’t want investors to dig deep because it knows how dire its situation is. 

AMC wants investors to believe that its woes are rooted in the pandemic. Q1 revenues in 2020 hit $941.5 million. That was mostly prior to the onset of Covid-19 and the shuttering of everything. A year later those revenues had fallen to $148.3 million. The argument would then go that once things pick up and theaters reopen AMC should be fine. 

AMC Stock Cannot Blame the Pandemic

The truth is that AMC cannot blame the pandemic for its troubles. In Q1 ‘20 its $941.5 million in revenues led to a $2.176 billion loss. In Q1 ‘21 its $148.3 million in revenues led to a $567.2 million loss.  So it was already in deep trouble before Covid-19 broke out. 

The only leeway investors can give the company is that Covid-19 has increased AMC’s already large losses. This is true because it went from incurring a $2.31 loss for every $1 of revenue in Q1 ‘20 to incurring a $3.82 loss for every $1 of revenue in Q1 ‘21. 

In either case AMC shares represent a losing proposition. 

The thrust of those figures is clear: Sooner or later AMC is going to drop precipitously. Redditors and other message board pundits can’t hold it up forever. But as long as they do AMC is going to continue to do what it has done and issue shares for liquidity’s sake.

Keeping Itself Afloat 

Since releasing less than stellar Q1 results on May 6, AMC has undertaken three separate equity capital raises. The company raised $428 million from 43 million at-the-market shares on May 13. Then, on June 1, AMC sold 8.5 million shares to Mudrick Capital for 230.5 million. And two days later it would raise an additional $587.4 million from 11.55 million at-the-market shares.  

The positive is that AMC upped its liquidity by roughly $1.245 billion in the span of a few weeks. The alternate side of that though is that AMC added 63.05 million more mouths to feed from its pot of earnings. 

Those 63.05 million newly issued shares bring the number of shares outstanding to 501.78 million. Those who had shares prior can count on receiving a smaller distribution moving forward. In other words, dilution.   

Takeaway 

The only argument against AMC’s continued decline is that it will experience a revival based on the reopening of the economy. I wouldn’t count on the long-term decline in movie going to suddenly do an about face. Any short term increases are a result of cooped up people and their desire to feel human again. 

Short term bets against that fate could absolutely be right, but the longer-term truth remains for AMC. 

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.