Shares of AMC Entertainment (NYSE:AMC) have been absolutely obliterated since they peaked in 2021. After all the stock offerings the company has put forward, shares of AMC stock currently trade around $5 per share. That’s good for a decline of more than 99% since the stock peaked during the 2021 meme stock craze.
Right before the pandemic hit, AMC’s share count sat at around 23.6 million shares. Today, that number has ballooned to roughly 295.6 million, good for a 12.5-fold increase in the span of roughly five years.
For those concerned about dilution, share count is a key metric to focus in on. Any time AMC stock has spiked in the past, the company’s management team has used that opportunity to issue shares. Thus far, that’s proven to be a disastrous move, given the company’s highly indebted balance sheet and the fact that these issuances don’t really make a dent in the poor fundamental outlook hampering the company’s core business.
Here are a few reasons why I think the party’s over for AMC shareholders.
Fundamentals Are Deteriorating
AMC’s management team is clearly focused on improving its balance sheet. However, investors have clearly frowned upon the company’s plan to reduce debt via an equity swap.
On June 24, Bloomberg reported talks with lenders to lower debt and extend bond maturities, causing a slight rise. It appears AMC is looking to undertake a capital structure move, which would swap some of its debt for equity, further diluting shareholders. While some remain optimistic this may improve the company’s cash flow outlook moving forward, foot traffic metrics and other revenue indicators suggest that interest payments may continue to weight on free cash flow for quite some time. So, in order for these moves to make any material impact, they’ll likely need to be very large and more widespread.
For existing investors, that’s the kind of fundamental outlook that should be viewed with a skeptical eye.
AMC’s Balance Sheet Is Full of Debt
AMC ended Q1 2024 with $8.99 billion in long-term debt. That was down from its 2021 debt load of roughly $10.75 billion. Net debt also declined to $8.37 billion from $9.16 billion over the same time frame. Now, while debt reduction is positive, the company’s lease payments remain a heavier financial burden than its interest expense over the long term.
According to its Q1 2024 10-Q, AMC faces $4.42 billion in minimum annual operating lease payments from 2024 to 2029, averaging $736 million yearly. Missing these payments would risk violating long-term debt covenants. While delaying long-term debt helps with one issue, its cash flow strain caused by lease payments on interest payments remains.
Closing theaters cuts the company’s lease costs but lowers revenue, upsetting lenders. AMC must find new revenue beyond tickets and concessions amid declining sales since 2002, making debt restructuring challenging.
AMC Stock Remains an Easy Sell
AMC’s share price has been supported by retail investors in recent years. That’s great, for moviegoers and those who love the brand.
However, for those who care (even a little bit) about fundamentals, this is a no-brainer stock to sell. AMC’s core business is in decline. Its balance sheet is riddled with issues and while an infinite number of shares can be issued (in theory), continued equity raises stand to dilute existing investors to $0.
For these reasons, this is a stock I think investors may want to avoid at all costs right now.
On the date of publication, Chris MacDonald did not hold (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.