AMC Entertainment (NYSE:AMC) stock had a fortuitous rise last year. It was caught in the midst of the meme stock mania, which helped pump AMC stock to senseless highs.
Meanwhile, the underlying business continued to struggle for most of the year due to the devastation caused by the coronavirus.
A superhero fourth quarter has the bulls excited, though, but a dreary outlook and a crippled balance sheet suggest that it’s best to avoid the stock.
Last year, the theater chain was a retail trading favorite. It was perhaps the elixir it needed to stay afloat during the pandemic.
For the most part, 2021 was another forgettable year for the company, but the release of Spiderman No Way Home helped the short-term sentiment surrounding AMC stock.
However, a one-off will not save AMC from its unsettling woes. Hence, it’s tough feeling giddy about AMC stock at this time.
Frail Balance Sheet
AMC’s management has done a tremendous job since the onset of the pandemic in fortifying the company balance sheet. However, the measures taken to secure enough cash for its survival have put its financial flexibility in a precarious situation.
AMC has a whopping debt load of over $5.3 billion, costing it millions in interest expenses annually. Moreover, it appears that the company doesn’t have enough cash to pay the principal when they become due.
The goal is to refinance the debt. At the end of the third quarter, the company had $1.8 billion in cash. The figure is likely to continue falling at a considerable rate for the foreseeable future.
Moreover, during the third quarter, the company lost $114 million in cash. In getting its financial situation in line with its requirements, shareholders will have to approve a share count increase.
AMC’s negative cash flow of more than $600 million for the first nine months of 2021 is a massive disappointment. The company received $79.7 million in coronavirus assistance and used the PIK option to pay interest expenses worth $116.2 million.
Spider-Man to the Rescue
The fourth quarter was a bummer until mid-December and the release of the highly-anticipated new Spider-Man film. AMC needed a massive bump during the fourth quarter to minimize the bleeding.
Fortunately, the movie delivered, and cumulative gross revenues came in at over $2.06 billion during the fourth quarter. This represents a whopping 963% improvement from the past year.
The blow-out December results could perhaps give AMC a chance at becoming slightly cash flow positive. Though the late quarter surge in moviegoers somewhat saved the fourth quarter, there are still many question marks for the rest of the quarter. The fourth quarter is typically a shorter period, but there aren’t any big releases coming up either.
Nevertheless, the Spider-Man effect will help the company end the quarter with a strong showing. Looking ahead, the first quarter is likely to be slower due to the impact of omicron and seasonality. However, 2022 is expected to be a bumper year with several major movie releases from the second quarter onwards.
Bottom Line on AMC Stock
The impressive box office numbers for the new Spider-Man flick show that people are willing to enjoy some movies in theaters.
However, AMC needs more successful films to turn the tide. Moreover, the company must increase capital expenditures to continue attracting moviegoers.
All in all, its financials are a mess, and it may take years before it can salvage its position. Hence, it’s best to avoid AMC stock for now.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.