It’s finally time for serious investors to consider buying AMC stock

It’s been a year since the meme stock frenzy peaked with AMC Entertainment Holdings (AMC 2.13%) reaching historic highs in early June last year. The stock lost 84% of its value, but it’s not like the AMC bears had exactly the last laugh. Many of their stocks also fell sharply.

AMC has earned some of its downticks. Its stock count has quintupled during the pandemic as the country’s largest multiplex operator sold a ton of new stock at low prices to stay afloat. Nor is history likely to look kindly on the puzzle investment in gold mining, an unnecessary distraction for a company that already has a long way to go to turn an industry around. There was also a lot of unsubstantiated hype, as inexperienced online traders touted unrealistic price targets based more on hope and noise than real fundamental-driven financial analysis.

It’s easy to want to see AMC fail if you look on the outside, but it’s also time to put a cork in that schadenfreude. The multiplex industry is starts to turn the corner. The box office trickle is finally starting to turn into a spurt, and it’s finally possible to make a legitimate bullish case for AMC Entertainment shares, even with its more than 500 million shares outstanding.

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The only thing that has kept AMC’s recovery to pre-pandemic levels from getting on track is the long gap between blockbusters. There was a three month gap between Spider-Man: No Coming Home and The Batmanthen another two months before Doctor Strange in the Multiverse of Madness brought in customers in droves.

People don’t go for independent films and many genres that they can easily stream from home. Give AMC a steady diet of superheroes and action movies — the kind of films that are undeniably better in a crowded theater set — and its box office receipts will roar like the lion of MGM. We are finally there. Top Gun: Maverick broke Memorial Day holiday weekend records for the industry, and two weeks later Jurassic World: Dominion gave AMC the punch it lacked in its revival.

Right now, that may not seem like enough. Admissions for the industry are down nearly 30% so far for the quarter compared to the second quarter of 2019, even after these past three robust weekends. Year-to-date, it’s still down 37% from 2019 (and 41% below where it was at this point in 2018).

Things will be better. What could be better than the one-two punch that saw AMC register 15% more admission revenue than the comparable pre-pandemic weekend in 2019? Let’s throw a third fist into this fight. Light year it’s going to be huge this weekend. We’re talking about three huge films appealing to three slightly different audiences.

You can hate AMC’s cash burn rate and its heavily leveraged balance sheet. I do not like it. You might think conspiracy theories about dark pools and illegal shorts are for fringe speculators wearing Jiffy Pops as hats. This is not beautiful. You still don’t want to bet against AMC Entertainment a week from now when the box office numbers roll in this coming weekend.

Analysts don’t see the chain turning a profit until at least 2026, and the bearish argument is that AMC’s liquidity can’t last that long. Here’s a second take, coming from someone who isn’t big on the meme stock movement and its unjustifiable price targets that – in some egregious cases – would make AMC the most valuable stock on the planet.

AMC could be profitable well before four years. This summer will be huge for the box office, and the channel itself has gotten smarter about its true profit centers. During the pandemic lull, we’ve seen AMC come to life by adding mobile concession orders across the chain and improving its food offerings, even adding libations at stand-alone bars. Consolidated food and beverage revenue per customer has increased 40% since 2019.

Of course, there’s a lot of debt to clear here. However, with most of the helium now depleted – and its activity fundamentally better than before – it’s time to start believing in AMC as an investment again.

Robert D. Coleman