It’s difficult to grasp, but AMC Entertainment (AMC) is actually up since the beginning of this year, despite shut down theaters around the globe and an obvious shift into streaming media.
There are a many reasons for this rise, from optimism about a reopening and recovery to the completely speculative trading trend, but the fundamentals are the only thing that long-term investors should think about. And that is why you should stay far away from this stock.
The movies have changed
The past twenty years has seen a huge decline in box office sales that does not seem to be reversing course. The tickets sold in Canada and the States are down after their peak in 2002. This loss in movie goers has been offset by more expensive tickets, but there is a limit to how much theaters can charge.
To make things worse, home theaters are now better and cheaper and studios are creating relationships with streaming services for direct delivery of their content. The theater experience seems less needed than ever before for both movie creators and consumers, and that is bad news for AMC.
The company’s balance sheet is in terrible shape
Even if AMC finds a way back to pre-pandemic numbers, the company is still not a good buy for investors. In 2019, the firm had a $149.1 million loss, and that was before COVID-19.
The company has also added over $1 billion in debt over the previous year and now has a total of $5.7 billion owed.
So operations are doing worse over the long-term, and the balance sheet is now more leveraged than ever before. These are not trends you want to see in a long-term investment.
Stay far away from this stock
AMC stock is red hot right now as Reddit traders have brought the shares up. Or it could be a bet on an economic recovery. But even after a recovery, AMC is not in a position to be worth investing in, and it absolutely is not a growth stock. That means you should avoid this stock at all costs.