Theater company AMC Entertainment (NYSE:AMC) beat Wall Street’s revenue expectations in Q3 CY2024, but sales fell 4.1% year on year to $1.35 billion. Its GAAP loss of $0.06 per share was also 30.6% above analysts’ consensus estimates.

Is now the time to buy AMC Entertainment? Find out by accessing our full research report, it’s free.

Company Overview

With a profile that was raised due to meme stock mania beginning in 2021, AMC Entertainment (NYSE:AMC) operates movie theaters primarily in the US and Europe.

Leisure Facilities

Leisure facilities companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted their spending from "things" to "experiences". Leisure facilities seek to benefit but must innovate to do so because of the industry's high competition and capital intensity.

Sales Growth

Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. AMC Entertainment’s demand was weak over the last five years as its sales fell by 4% annually, a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. AMC Entertainment’s annualized revenue growth of 4.1% over the last two years is above its five-year trend, but we were still disappointed by the results. Note that COVID hurt AMC Entertainment’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.

This quarter, AMC Entertainment’s revenue fell 4.1% year on year to $1.35 billion but beat Wall Street’s estimates by 1.1%.

Looking ahead, sell-side analysts expect revenue to grow 10.4% over the next 12 months, an improvement versus the last two years. Although this projection illustrates the market believes its newer products and services will spur better performance, it is still below the sector average.

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Cash Is King

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Over the last two years, AMC Entertainment’s demanding reinvestments to stay relevant have drained its resources. Its free cash flow margin averaged negative 10.5%, meaning it lit $10.47 of cash on fire for every $100 in revenue.

AMC Entertainment burned through $92.2 million of cash in Q3, equivalent to a negative 6.8% margin. The company’s cash burn increased meaningfully year on year while its cash conversion fell 7.4 percentage points. This relationship shows AMC Entertainment’s management team spent more cash this quarter but was less efficient at generating sales with that cash.

Over the next year, analysts predict AMC Entertainment will continue burning cash, albeit to a lesser extent. Their consensus estimates imply its free cash flow margin of negative 12.6% for the last 12 months will increase to negative 1.6%.

Key Takeaways from AMC Entertainment’s Q3 Results

We were impressed by how significantly AMC Entertainment blew past analysts’ EPS expectations this quarter. We were also glad its EBITDA outperformed Wall Street’s estimates. On the other hand, operating margin and free cash flow generation was worse this quarter than in the same quarter last year. Overall, we think this was a mixed quarter. Shares traded down 7% to $4.26 immediately after reporting.

So should you invest in AMC Entertainment right now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.