Although the stock is still down 74% from the heights attained during the meme stock trading frenzy a year ago, and are off over 30% in 2022 alone, the reversal of fortune is a welcome reprieve for investors in the movie theater operator.
AMC made a number of announcements this past week that investors see as benefiting the theater chain over the long haul, not least of which was refinancing some $950 million worth of its debt that will reduce its interest payments by $24 million.
No one really needs a recap of AMC’s troubles during the pandemic and its struggles after theaters were allowed to reopen. Its meme stock status was also cemented after internet traders rallied around its shares after short sellers bet their value would fall to zero. Since then, it’s been a contest of wills over whether the stock can be propped up or not.
Although shares are down sharply from where they had been, they do remain 2.5 times above the bottom they hit during the lockdown phase of the pandemic. Investors who bet then the movie industry wouldn’t fully collapse are doing well; everyone else, not so much.
But AMC is still trying to prove its relevance in an industry that has been on a slow, steady decline for years. Attendance continues to dwindle, and unless there is some blockbuster film appearing on the big screen, few people bother coming out. Streaming and other forms of entertainment remain too compelling.
Yet give CEO Adam Aron credit for trying to think outside the box. For example, one of the announcements he made this week was the hiring of a former Netflix and Frito-Lay executive to head up his plan to market his theater’s popcorn outside of the movie theater.
It’s a bold plan, even though I’m not sure it will work since the first thing that comes to mind with theater popcorn is a massive bucket of overpriced hot air-puffed kernels dripping in butter. Still, it’s just one of many ideas the theater executive is trying to diversify.
The movie theater industry is not about to drop dead anytime soon, and likely has many, many years ahead of it. That doesn’t mean theater stocks are a good investment, at least not at the elevated levels AMC Entertainment is trading at.
Until the stock more appropriately reflects its business prospects, it’s tough to see the value in buying in at these levels. That price is certainly above the bankruptcy levels short sellers were hoping for, but also well below the current price AMC’s self-described “apes” are trying to keep the movie theater stock at.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.