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Earnings Beat Does Not Justify AMC Stock Valuation

AMC Entertainment (NYSE:AMC) has hugely succeeded due to its latest earnings and outlook. There is a reason for optimism surrounding the recent excellent box office results and the slate of upcoming blockbusters. However, AMC stock is now bac…

AMC Entertainment (NYSE:AMC) has hugely succeeded due to its latest earnings and outlook. There is a reason for optimism surrounding the recent excellent box office results and the slate of upcoming blockbusters. However, AMC stock is now back on a downward trajectory.

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At the moment, shares of the company are perilously close to the 52-week low of $9.7 a pop. But there is still a large section of analysts that believe AMC is still overvalued at these rates.

Wedbush’s Alicia Reese has reaffirmed her stance on AMC stock with a rating of “underperform” but slashed its price target to $4 from $5. Reese expects their theater attendance to increase “meaningfully” over the rest of the year. However, the analyst believes that the company will have to contend with higher marketing spending, the costs of concessions and utility, and higher pay.

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AMC
AMC Entertainment
$12.13

Reese said she believes high volatility will remain a hallmark for the company, considering its investor base. AMC’s cryptocurrency launch will ultimately add gasoline to this already burning fire.

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MKM Partners analyst Eric Handler is a little more bullish on AMC stock, though. He believes the movie slate for the remainder of the year is strong and should bring people out to the theatres. Plus, the company’s other initiatives, such as off-premise popcorn, will help boost the top line. However, he remains skeptical of the valuation and maintains a sell rating with a $1 stock price target.

Will AMC Grow Into Its Valuation?

Ultimately, the future of AMC stock will be decided by its core business. On that end, the company has done well in the last two quarters.

AMC reported a loss in the first quarter, wider than anticipated, but revenue grew nearly five times more than predicted. Last year, admissions revenue rose faster than food and beverage revenue for AMC. This, of course, has been beneficial for their bottom line.

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In addition, the slate of summer blockbusters succeeded in getting investors to the theatres. In recent years, tentpole releases such as ‘Doctor Strange 2’ and Batman did very well at the box office.

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Chief Executive Adam Aron was optimistic about the coming slate of blockbuster movies to come. It includes “Top Gun: Maverick,” “Jurassic World Dominion,” “Black Panther: Wakanda Forever,” and “Avatar 2.”

However, it’s also important to temper the excitement. Although the blockbuster movie seems to be very safe, the same cannot be said for mid-level film, which struggles to gain any traction. This secular trend has nothing to do with AMC but with how we consume content in general.

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Plus, AMC has increased its outstanding shares by over 400% since the pandemic’s start. It will take several years for the company to justify this increase in shares.

AMC Stock Needs to Fall Further

For months now, analysts and experts have said the same thing. AMC has done a great job with the hand that it has dealt. It has managed to keep up interest in the company from the Reddit crowd while also taking strategic decisions to better its future. But it’s not enough to justify its valuation.

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That has not changed much since it reported earnings. Therefore, AMC stock is still not a buy.

On the publication date, Faizan Farooque 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.

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