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AMCEntertainment (NYSE: AMC ) shares are down more than 85% in 2022. It’s an epic value erosion! So is this now my chance to buy AMC stock at a bargain price? Or is this an investment I should steer clear of?
meme stock mania
As a reminder, AMC Entertainment is the largest theater chain in the world. Its core business had been lackluster for a long time before Covid, with mounting debt and declining foot traffic at its locations. The stock has actually underperformed for years. Then, the pandemic and subsequent lockdown hit the company’s balance sheet hard.
However, AMC became a popular meme stock in 2021, when retail investors banded together through online forums and bought them en masse. The stock, which started 2021 at just $2, has soared more than 36-fold to an all-time high of $72 just six months later.
This speculative interest kept the company from the brink of bankruptcy. Management seized the opportunity to issue new shares at high prices, raising a lot of money.
In fact, when movie world (AMC’s rival) filed for bankruptcy last year, and its deputy CEO lamented that it wasn’t caught in the meme stock frenzy either. He said: “Of course, Cineworld would welcome the liquidity of being a “meme stock” like AMC, but we’ve never been so lucky!“
Fast forward to today, however, and the vast majority of gains in AMC stock have evaporated.
Headache
The company has been trying to find ways to raise more money to pay down its massive debt. While that’s sensible with rising rates, some of its other ventures seem more questionable to me.
For example, last year the company announced the acquisition of a company called Hycroft Mining. AMC boss Adam Aron described the investment as “Bold Diversity Moves“.
I think it’s an odd use of capital, to say the least. The company’s strength lies in trying to create — and then extract — value from the moviegoing experience, rather than analyzing gold stocks. It deviated so far from its core business that it made me worry that other maverick moves might follow.
box office recovery
That being said, there could be near-term positive catalysts for the stock. One is that the global box office is expected to recover strongly this year as more blockbuster films are released.
last week there was evidence Avatar: The Way of Water In just two weeks, worldwide ticket sales reached $1 billion. More big-budget films are coming in 2023.
Still, a return to pre-pandemic levels is not expected until 2024 or 2025. if so.
Will I buy stocks?
As noted investor Ben Graham said: “In the short run, the market is a voting machine, but in the long run, it’s a weighing machine.”
Over the past two years, AMC has never been the same. In the long run, what matters most is the fundamentals of the company.
With its heavily diluted stock and net debt currently at $4.6 billion, the company is fundamentally unattractive to me. So I won’t buy any stocks.
post Should I Buy Battered AMC Entertainment Stock in 2023? first appeared in british motley fool.
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Ben McPoland has no position in any of the shares mentioned above. The Motley Fool UK does not hold any positions in any of the stocks mentioned above. Opinions expressed about companies mentioned in this article are those of the author and as such may differ from our official recommendations in subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that, taking into account a variety of insights, We are better investors.
Motley Fool UK 2023
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