AMC Entertainment Holdings, Inc. (AMC) is a prominent theatrical exhibition company. The company owns, operates, and has interests in theaters in the United States and worldwide. It operates over 950 theaters and 10,600 screens.

AMC has lost 79.3% over the past year and 42.7% over the past three months after Cineworld, the world’s second-largest movie theater chain, filed for bankruptcy. In addition, closing its last trading session at $7.67, AMC’s shares are currently trading 83.3% below their 52-week high of $45.95, which they hit on November 08, 2021.

Furthermore, according to a filing by AMC, it has entered into an equity distribution arrangement under which it may sell up to an additional 425 million AMC preferred equity units (APEs), raising about $1.7 billion. AMC said the proceeds will be used "primarily to repay, refinance, redeem or repurchase the company's existing indebtedness."

However, this could hurt investor sentiment as those equity units could eventually be converted to common shares, creating massive dilution to existing shareholders.

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

Top-line Performance Does Not Translate into Bottom-line Improvement

AMC's revenue increased 162.3% year-over-year to $1.17 billion in the second quarter ended June 30, 2022. However, the company's operating costs and expenses rose 59.5% from the year-ago value to $1.18 billion. The company reported an operating loss of $16.10 million and a net loss of $121.60 million.

Moreover, its cash and cash equivalents came in at $965.20 million as of June 30, 2022, compared to $1.59 billion as of December 31, 2022.

Poor Profitability

AMC's trailing-12-month gross profit margin of 10.8% is 78.7% lower than the industry average of 50.5%. Also, its trailing-12-month ROA, net income margin and ROC are negative 8.4%, 21%, and 2.2%, respectively. Moreover, its trailing-12-month asset turnover ratio of 0.37% is 24.9% lower than its industry average of 0.49%.

Poor Earnings Estimates

Street expects the company’s EPS to decline 217% per annum over the next five years. Also, its EPS is expected to remain negative in the current and next year. In addition, AMC failed to surpass the consensus EPS estimates in two of the trailing four quarters.

Consensus Rating and Price Target Indicate Potential Downside

Of the five Wall Street analysts that rated AMC, three rated it Sell, and two rated it Hold. The 12-month median price target of $5.53 indicates a 27.9% potential downside. The price targets range from a low of $0.50 to a high of $11.00.

POWR Ratings Reflect Bleak Outlook

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 a D for Sentiment. The stock’s beta of 1.78 is in sync with the Stability grade. In addition, analyst ratings and price targets are consistent with the Sentiment grade.

Of the six stocks in the F-rated Entertainment – Movies/Studios industry, AMC is ranked last.

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

Bottom Line

AMC's shares have plunged 16.4% over the past month amid the rising uncertainties surrounding the cinema chain stocks. Furthermore, AMC's weak financials, poor growth prospects, negative profit margins, and premium valuation are projected to keep the stock under pressure in the near term. Therefore, it could be wise to avoid the stock now.

AMC shares were trading at $7.37 per share on Thursday morning, down $0.30 (-3.91%). Year-to-date, AMC has declined -72.90%, versus a -22.82% 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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