After Painful Losing Streak, AMC Entertainment Might Actually Be a Buy

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David Moadel

Thu, Jan 27, 2022, 9:24 AM 4 min read

From the onset of Covid-19 to the meme-stock trade, it’s been quite an eventful couple of years for anyone who held shares of global movie-theater chain AMC Entertainment (NYSE:AMC). Suffice it to say that it hasn’t been easy to stay invested in AMC stock, but at least it’s never been boring.

People wearing masks walking past an AMC theater.

Source: rblfmr/Shutterstock.com

As broad-market carnage beset Wall Street in December and much of January, it appears that the highest flyers had the hardest landings. Once-touted names have lost much of their value, with meme stocks suddenly falling out of favor and sinking to new short-term lows.

It’s true that many of InvestorPlace‘s contributors tried to warn the readers that this could happen. Still, I’d like to offer some words of solace and even hope for downtrodden, ill-timed AMC stock traders.

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Granted, there’s no guarantee of a turnaround. However, the refinancing efforts of an American movie-theater icon could signal better times ahead for legions of loyal “apes” with multi-bagger ambitions.

A Closer Look at AMC Stock

All of that being said, it really is time to let go of our “moon shot” fantasies. AMC stock’s rally from $2 to $72 would be extremely difficult for the market to replicate.

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Consider the math. As of Jan. 25, the stock was trading at roughly $16. It would have to somehow reach $576 to reproduce last year’s 36x move.

A more sensible objective would be for AMC stock to retake the $30 level. That would represent a near share-price doubling, which is nothing to sneeze at.

As far as support levels are concerned, it’s difficult to identify anything meaningful if a stock goes vertical and then crashes. There’s just no “safe zone” to speak of here.

In the final analysis, keep your price targets realistic and always remember that AMC stock is highly speculative. Therefore, all position sizes should be small.

Time to Get Creative

Say what you will about CEO Adam Aron, but there’s no denying that he’s been fairly transparent about AMC Entertainment’s massive debt load.

“In 2020 and early 2021, AMC took on debt at high interest rates to survive,” Aron once admitted. Clearly, with the Covid-19 pandemic keeping moviegoers at home, the company had to do what it had to do.

More recently, there have been signs that people are ready and willing to return to movie theaters. For instance, AMC reported that Spider-Man: No Way Home was the highest-grossing movie title on its opening night in the company’s history for the month of December.

Despite that success, AMC Entertainment still has to repay its debts and find ways to shore up its balance sheet. The movie-theater chain’s CEO is, at least, apparently prepared to address this financial issue.

“There is no guarantee of success, but we will try very hard to get this done. We are always thinking of creative ways to make AMC’s future more secure,” Aron explained.

Active Discussions

Still, trying hard isn’t enough. AMC Entertainment’s investors – “apes” included – should want to see progress, and results.

According to The Wall Street Journal, the company had $5.5 billion worth of debt as of September that ranks ahead of the company’s equity, including high-interest bonds. Furthermore, AMC owed $376 million worth of lease payments which were deferred during the Covid-19 pandemic.

Fortunately, it appears that AMC Entertainment is making an effort to refinance some of its debt. Reportedly, people familiar with the matter are saying that AMC is in advanced refinancing talks with multiple interested parties.

With that, the company supposedly has options to lower its interest-payment burden and stretch out the debt’s maturities by several years.

Obviously, this isn’t a permanent solution. It’s really more of a lifeline, but probably a necessary one.

The Bottom Line

So, at least it appears that AMC Entertainment might be engaged in active discussions with its creditors.

For the shareholders, it should be encouraging to see the company taking proactive steps to manage its considerable debt load.

It’s a real-world reason to consider AMC stock, as opposed to a meme-stock fantasy. Reality is harsh, but it’s unavoidable – and just maybe, for the most patient investors, a movie-like ending could be in store.

On the date of publication, David Moadel 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.