AMC (NYSE: AMC) stock price has continued to underperform the broader market this year. It has crashed by over 25% while the Nasdaq 100 and S&P 500 indices are sitting at their all-time highs as demand for tech has waned.
$10k invested in AMC has dropped to $115AMC investors have suffered huge losses in the past few years. For example, an investor who bought shares worth $10,000 at its peak of $393 in 2021 received just 25 shares. Today, these shares are worth just $115, representing a 99% wipeout.
It is easy to understand why AMC stock has crashed hard in this period. Demand for movies crashed hard during the pandemic and the company had leases to pay. It has a mountain of debt and the Box Office recovery has been slower than expected.
Worse, AMC has been one of the most dilutive meme stocks in Wall Street. In this period, the number of outstanding shares have surged from less than 6 million in 2020 to over 200 million today.
The company has used these dilutive actions to reduce its debt load. Indeed, as shown below, the total debt has dropped from a peak of $11.3 billion in 2021 to over $9.31 billion today. While this is good progress, it still leaves it highly in debt.
AMC stock chart with outstanding shares and total debt
AMC has limited maturities this year as it is expected to pay $24.9 million. Its biggest maturity will come in 2026 when the company is set to pay over $3 billion. The hope is that by then, its business will be much better. The challenge is that it still has substantial lease obligations, as you can see in this 10Q statement.
AMC has another challenge, as I have written before. The issue is that the slated blockbuster releases are not expected to be as strong as in 2023 when Barbie and Oppenheimer made headlines. This means that it will be hard to replicate the success it had in the past quarter.
The quarter’s results revealed that it made a small profit of $12.6 million in the quarter, a big jump from the $226 million loss it made in the same period in 2022. It will hard to replicate that especially now that analysts expect that box office sales will drop this year.
What next for the AMC stock price?I believe that AMC Entertainment will remain under pressure this year as growth in its industry remains. The company will also likely need to raise more capital, probably by issuing a convertible bond.
However, the stock has dropped to just $4, meaning that some investors believe that the company is heading towards bankruptcy. This is a possibility since other meme stocks like Lordstown Motors and Bed Bath and Beyond have filed for bankruptcy.
Proponents for this route believe that filing for bankruptcy protection would enable it to restructure its finances and emerge as a stronger company.
On the other hand, bulls believe that the company has room to bounce back now that its stock has become extremely cheap.
I belong in the latter group since I believe that the stock has become a high-risk and high-reward company for now. In this case, as I wrote recently here, if it shows some improvements, the stock could more than double and hit $10 this year.
Besides, the chart above shows that the stock may be in the accumulation phase of the Wyckoff Method. This phase is characterised by low volatility and is followed by the mark up phase.
If it fails, it can drop to zero, especially when the management decides to file for bankruptcy protection this year. This means that an investor who buys AMC will either make a fortune or lose all of it.
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