What’s the long-term outlook on AMC’s share price?

AMC’s [AMC] share price hasn’t exactly been buttering investors' popcorn recently. Over the past month, the stock has slipped over 20% (as of 13 July close), with the apparent catalyst AMC’s plan to issue $25m new shares in order to raise more capital.

As a ‘meme stock’, AMC’s share price has surged off the back of Reddit-forum hype and the rise of retail traders. And with the pandemic effectively shutting cinemas last year, AMC has looked to cash in on the stock’s rich valuation to make ends meet.

However, the planned share sale was scrapped last week following feedback from investors, with AMC saying it wouldn’t seek to increase its outstanding shares to around 549m at a 29 July annual meeting.

“It’s no secret I think shareholders should authorise 25 million more AMC shares,” the company’s chief executive, Adam Aron, wrote in a tweet. “But what YOU think is important to us. Many yes, many no. AMC does not want to proceed with such a split.”

“It’s no secret I think shareholders should authorise 25 million more AMC shares. But what YOU think is important to us. Many yes, many no. AMC does not want to proceed with such a split” - Adam Aron, AMC CEO

 

Aron added that another attempt to issue new shares won’t happen until 2022 at the earliest AMC’s share price popped on the announcement as a dilution of the stock was adverted,  but has since continued the downward trend seen over the past month.

 

Why AMC is cashing in on its share price

AMC’s share sales have pulled the company from the brink of bankruptcy. With Reddit forums recommending the stock, AMC’s share price has rocketed 1900% over the past 12 months (as of 13 July close) - and AMC hasn’t been shy on cashing in on the Reddit-trading frenzy.

Between April and June, AMC has generated $1.25bn through share sales which it needs to strengthen its balance sheet. Had the latest offering gone ahead it would have pulled in around $1bn in fresh capital.  Although it would have also pushed the limit of the number of shares AMC can issue. In May plans to increase the total number of shares it could issue were shot down as it became clear shareholders wouldn’t vote the proposal through.

  

Where next for AMC’s share price?

AMC’s share price pullback is perhaps inevitable considering that the US cinema chain is favoured by the Reddit crowd. As a ‘meme stock’ it’s been propelled higher by the coordinated action of online traders. The company has made no bones about this, and has rolled out the red carpet for its 3.2m retail investors who own around 80% of the cinema chain’s shares, going so far as to launch an investor portal offering exclusive discounts and invitations for screenings.

Not that’s necessarily a bad thing or something that can be ignored. Back in June, Jamie Powell wrote in the Financial Times’ Alphaville column that  “[the] retail trading phenomenon can no longer be dismissed as a dumb flash of irrational exuberance but, rather, a new structural feature of US equity markets.”

Powell suggests that ‘certain ailing businesses’ can have their fortunes turned around by a ‘co-ordinated mass of commission-free investors’.

“[the] retail trading phenomenon can no longer be dismissed as a dumb flash of irrational exuberance but, rather, a new structural feature of US equity markets” - Jamie Powell

 

Longer-term AMC’s share price performance will depend on whether people are willing to embrace the cinema once again. But even going back to how things were isn’t guaranteed, with blockbusters now also being streamed shortly after their cinema release - Marvel’s delayed Black Widow launched in the cinema and on Disney+ within the space of a week.

Then there’s the AMC share price defying the underlying fundamentals. On Tuesday the company held a $20.2bn market capitalization. That’s more than double the combined revenue expectations for both 2021 and 2022. And while a recovery in revenues is underway, AMC is still struggling. In the first quarter of the year, Non-GAAP adjusted EBITDA came in at a $294.7m loss, at least better than the $2.2bn loss seen in the same period last year.

It’s hard to ignore the fact that AMC’s pre-pandemic revenues would have been nowhere near the level to justify the current market cap. In the fourth quarter of 2019, AMC pulled in total revenues of $1.44bn, for an adjusted EBITDA of $269.1 million. That year, AMC’s share price closed at $7.3 - compare that to the $72.62 the stock hit in intraday trading on 3 June.  In short, saying the stock is overstretched is something of an understatement.

Analysts seem to think a drop is due, with $16 is the highest analyst price target, according to Refiniv data, a 59% downside on Tuesday’s close of $39.35. Of the 12 analysts offering recommendations, 8 rate AMC a Hold, 3 Underperform and 1 a Sell.