AMC Entertainment (NYSE:AMC) announces its Q4 2021 results today after the market closes. While they’re expected to be positive, that won’t save AMC stock.
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In early February, I suggested that AMC’s best year from a financial perspective was 2018 when revenues were $5.46 billion with $265 million in operating profits.
Heading into its Q4 report, AMC has trailing 12-month (TTM) revenue of $1.52 billion and an operating loss of $1.21 billion.
Analysts expect it to deliver $2.48 billion in sales, 99.3% higher than in 2020. The average estimate on the bottom line is for a loss of $2.77 a share, considerably better than a year ago, but a large loss nonetheless.
In 2023, revenues are expected to jump 86% to $4.62 billion with a 74-cent loss. Better, but not close to its record-setting year in 2018.
What’s amazing is that up until 2021, AMC’s price-to-sales ratio was never more than 1.07x. Based on $4.62 billion in 2023 sales, its forward P/S ratio is still historically high at 1.89x [$8.73 billion market cap divided by 2023 sales of $4.62 billion].
You would think an asset-light business model like AMC’s would generate more free cash flow than it does. However, in 2018, it used $50 million in free cash while losing 7 cents a share. And that was the company’s best year.
If only it could turn back time, as Cher would say.
An Entertainment Alternative to AMC Stock
In February 2021, I suggested that Marcus Corp (NYSE:MCS) was a better long-term option than AMC.
Based on a back-of-the-napkin calculation of the Milwaukee-based owner of hotels and movie theaters, it was possible investors at the time were assigning an enterprise value of -$400 million to the company’s theater business.
A year ago, AMC’s theater business had an enterprise value of $12.8 billion, or 32x higher than Marcus.
AMC stock had briefly crossed $20 after the meme-stock explosion on Jan. 27, 2021. By the time I wrote about it in mid-February, its shares were back below $6.
Little did I know that AMC would end up jumping to $60 by the middle of June.
I thought $20 was crazy for a business that’s never been able to generate significant profits. At $60, I don’t know what you’d call that, except overvalued to the power of 10.
However, despite the lack of fundamentals backing AMC stock, it still trades 203% higher than February 2021. Can you see my head shaking in dismay?
As for Marcus, it continues to be undervalued at 1.74x sales, or 38% of AMC’s P/S multiple of 4.51x.
Marcus remains the better option.
The Bottom Line
I’m not the only InvestorPlace contributor that’s negative about AMC stock. Thomas Niel recently suggested it could fall by 50%, putting it in single digits, if not penny-stock status.
I especially liked this part of Niel’s commentary:
“At a 16x EBITDA multiple, the company’s enterprise value would be around $9.6 billion. Subtract its $10.92 billion in debt and lease liabilities, and add back in $1.61 billion in cash, its implied market cap falls to $290 million. That’s around 57 cents per share. Give it a lower EBITDA multiple, and its net value goes underwater.”
My argument against owning AMC stock is that even when it’s going great guns, as in 2018, it’s not a great business.
This is because it has two primary revenue streams: ticket sales and food & beverage sales. On top of that, it’s got a little advertising revenue, and it’s working on selling its own brand of popcorn in grocery stores.
As my colleague says, the valuation of AMC stock remains excessive. It might get a bounce from good earnings, but ultimately, it’s only worth single digits. So, like the rest of the world, it’s time for AMC to return to normal.
Its 15 minutes of fame are over.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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