Global movie-theater chain AMC Entertainment (NYSE:AMC) has legions of fans, known as “Apes.” Loyalty is fine, but they shouldn’t feel obligated to AMC. After reviewing the relevant facts and circumstances, we can only give AMC stock an unenthusiastic “D” grade.
AMC Entertainment isn’t entirely hopeless, so we won’t give the stock an “F” grade. After all, the company will benefit from a couple of recent blockbuster movies. However, AMC Entertainment still has a long way to go before the company can meet its vast financial obligations.
Two Hit Films Amid a Lackluster Year
For what it’s worth, AMC Entertainment reported huge box-office receipts for the three-day weekend of June 13 to June 16. Inside Out 2 generated more than $150 million, while Bad Boys: Ride or Die scored $33 million domestically.
The “Apes” shouldn’t get too excited, though. For one thing, those dollar amounts are “across the industry” figures. Thus, AMC Entertainment only took a piece of the financial pie, not the whole pie.
Second, two blockbuster films don’t negate a lackluster year-to-date. The Wall Street Journal noted “several disappointing debuts that have cast a pall over this summer’s movie season,” such as The Fall Guy, IF and Furiosa: A Mad Max Saga.
Citing data from Box Office Mojo, The WSJ observed that the U.S. movie industry’s “total domestic box office this year of $3.03 billion is running 25% below the same point last year and 41% below 2019’s level.”
So, a pair of blockbuster films doesn’t even come close to creating pre-COVID-19-pandemic industry conditions for AMC Entertainment.
AMC Entertainment’s Heavy Debt
During the meme-stock revival of mid-May, AMC Entertainment stock shot higher and the company took advantage of this phenomenon to reduce its debt. Yet, this isn’t entirely positive news.
As Bloomberg reported, AMC Entertainment exchanged “about $164 million of its 10% notes due 2026 for 23.3 million shares of newly-issued stock.”
The good news here is that the company was able to pay off some high-interest debt. The bad news is that “23.3 million shares of newly-issued stock” raises value-dilution concerns for AMC Entertainment’s current shareholders.
Besides, $164 million of repaid debt would only be a drop in the proverbial bucket.
According to Bloomberg’s calculations, AMC Entertainment has a “debt load of about $4.5 billion of long-term borrowings.”
This begs the question of whether the company will take more potentially share-dilutive actions to chip away at its massive debt load.
Don’t Weigh Down Your Portfolio With AMC Stock
AMC Entertainment’s debt isn’t free money, as the company has to pay it all back and is also paying interest on the debt. If you choose to invest in AMC Entertainment, you’re indirectly bearing part of the burden of the company’s debt.
Meanwhile, it’s good news for AMC Entertainment that two recent films generated strong box-office receipts. On the other hand, the domestic movie market still isn’t back to pre-pandemic levels.
Therefore, even while we respect the loyalty of the “Apes,” we’re only willing to assign AMC stock a “D” grade.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.