Is AMC going out of business? One of the world’s biggest operators of movie theaters is AMC Entertainment. The outbreak of the coronavirus severely affected its business. It’s still experiencing difficulties. Millions of small-scale investors saved the company from bankruptcy in 2021 by turning its shares into “meme stocks.” Since then, AMC has developed various plans to raise more funds. This is to reduce its debt and invest in purchases, theater improvements, a popcorn company, and even a gold mine.
Although more people will visit theaters in 2023, it is undoubtedly possible that AMC will experience bankruptcy. It is a result of the poor status of the business’s finances. The company’s fair value is probably lower than its current price due to the significant dilution of the shares since 2020.
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Problems faced by AMC
The American theater chain AMC Entertainment Holdings, Inc. (AMC) was established in Kansas City, Missouri. Its current location is in Leawood, Kansas. It is the world’s largest chain of movie theaters. AMC, founded in 1920, has a larger market share than Regal and Cinemark Theatres in the United States.
The pandemic in 2020 ultimately forced movie theaters to close their doors. AMC’s financial results were poor during this difficult time. Then it somehow became entangled in the meme stock craze. This is causing its stock to fly upward based on emotions rather than financial success. On discussion forums, aggressive investors were able to move the stock in an erratic manner.
The high stock price enabled the company to issue shares. This gave the theater business the money it needed to survive the epidemic. The company’s survival ability balanced the dilution that shareholders felt due to the stock trades. If the business had filed for bankruptcy, the shares would have been useless.
Yet, July 2021 saw an exciting incident. AMC has applied for permission to raise its share count to issue new shares. It withdrew the idea because stockholders were objecting. The firm rejected the request. It states that issuing further shares would dilute current shareholders even more than they already were. Besides the fact that shareholders could safeguard themselves, this was a crucial indicator that management might not have had the owners’ interests in mind.
AMC acquired a 22% stake in Hycroft Mining Holding in March 2022. Hycroft is a small gold miner in a field without a connection to movie theaters. Even if AMC has been purchasing movie theaters, it is difficult to see how investing in a risky gold firm is worthwhile. Investors were right to be concerned about the management’s usage of funds.
Does AMC stock have a future?
The current trends are not encouraging, and investors must be concerned. Although AMC has been functioning in a very challenging market, several recent moves are not in the best interests of shareholders. Although the meme-stock community has again begun to manipulate AMC’s stock, driving it higher, management’s actions state that the risk is relatively high.
AMC cut the principal amounts of its debts by around $107 million in the fourth quarter of 2022. This is a result of the debt buybacks and the previously disclosed refinancing of the debt owed by Odeon. As a result, it raised the overall principal debt reduction for 2022 to around $180 million.
The dispute around AMC in the stock market has persisted after both meme stocks had a terrible 2022. AMC stock had an alarming loss of 85% from its year-open price of 27.20 to its year-end price of 4.07. Also, shares went back to their January 2021 lows. But AMC has had a successful start to the new year thus far. Despite a 9% decline on Jan. 30 due to high trading volume, AMC shares are now rising again. They once showed an annual increase of 80%.
But, a few days after Sightline at AMC, a new value-priced option was launched by AMC this month. The rebound is slowing down, and the viewer’s line of sight now sets the ticket prices to the cinema screen inside the theater. The stock dropped 6.3% once more, marking its third straight loss. It went below the 50-day moving average, a technical indicator of weakness.
A writer for Seeking Alpha has stated that AMC Entertainment might not last until 2023. He listed out the likely causes of the movie theater chain’s downfall. They are AMC’s high-interest expenses, lower average operational profitability, and liquidity problems.
Conclusion
The world’s biggest chain of movie theaters has been trying to reduce its heavy debt load. The debt increased as theaters were shut down in the early stages of the COVID outbreak. It also has to deal with stock dilution and a need for blockbusters in movie release schedules.
Yet, the corporation has stated that theater investments are its main priority. This includes modernizing movie theaters and expanding the footprint of special effects theaters like Imax and Dolby Cinema.
AMC announced it was no longer in talks to buy theaters from Regal’s parent company, Cineworld. It’s because that company declared bankruptcy earlier in 2021. After its announcement, the capital raising and the reverse stock split occurred. AMC stated in a regulatory filing that talks with Cineworld lenders about assets in the US and Europe were over.
AMC itself was in danger of going bankrupt in 2021. But it was saved because of the meme stock millions of retail investors created from its shares. Since then, the business has developed many strategies to increase funding to pay down debt, make acquisitions, and expand theaters.