AMC Entertainment (AMC) touted its recent, impressive box-office receipts.
However, AMC Entertainment’s enormous debt load and strong drive to issue more shares are causes for concern.
Investors should completely avoid AMC stock.
There’s a “good news, bad news” situation with global movie-theater chain AMC Entertainment (NYSE: AMC). The good news is that AMC Entertainment recently reported a heavy influx of moviegoers. On the other hand, the company’s financial situation is far from ideal, and AMC Entertainment is working hard to increase the number of AMC stock shares.
AMC Entertainment has famously been a short-squeeze target of meme-stock traders. However, serious investors should consider the company’s fundamentals. Ask yourself: Will AMC Entertainment just create more shares, or will the company actually deliver value to the shareholders?
It’s a tough call, but investors need to consider these issues before jumping into a hasty trade. So, let’s start off with AMC Entertainment’s proud announcement concerning the company’s box office receipts.
AMC Entertainment Has a Great Weekend
Without a doubt, AMC stockholders are glad to hear any positive news. So, they should be happy to hear that AMC Entertainment had its third-busiest weekend at the company’s U.S. locations since December 2019.
Over 3.6 million moviegoers visited an AMC location in the U.S. during the weekend that ended April 9. Furthermore, AMC Entertainment recorded its highest day of revenue in the U.S. since the company reopened its theaters in 2020.
These impressive results shouldn’t distract AMC stock traders from the company’s financial problems, however. One great weekend doesn’t wipe away AMC Entertainment’s enormous debt load. At the end of last year, AMC Entertainment’s “total aggregate principal amount of its debt” was around $4.95 billion.
Moreover, the company (which is still unprofitable, by the way) is clearly unafraid to increase its debt burden. As evidence of this, AMC Entertainment enacted a private offering of $400 million worth of senior secured notes during 2022’s fourth quarter. The company will have to repay that debt at an interest rate of 12.75%.
AMC Stock Dilution Concerns Persist
AMC Entertainment’s strong box office weekend also shouldn’t distract prospective investors from ongoing share dilution concerns. Interestingly, the company’s shareholders voted overwhelmingly to increase the number of AMC stock shares.
Here’s the breakdown. Reportedly, 87% of AMC Entertainment’s shareholders voted in favor of combining AMC common shares and AMC Preferred Equity Units (NYSE: APE). In addition, 88% of the company’s shareholders voted in favor of “significantly increasing the capacity to issue additional common shares.”
To justify these measures, AMC Entertainment stated, “If implemented, AMC should have an ability to raise a significant amount of equity capital in the months and years ahead.” That may be true, but prospective investors should consider the dilutive impact of increasing the number of AMC shares in circulation.
Meanwhile, there’s a legal soap opera afoot as AMC Entertainment settled a lawsuit in the company’s quest to convert APE shares to AMC common stock. However, a U.S. court reportedly denied AMC Entertainment’s “request to lift a status quo order,” which would have allowed a faster conversion of the company’s preferred stock into common shares.
So, What’s the Best Move to Make Now With AMC Stock?
It looks like AMC Entertainment is stubbornly determined to raise capital by any means. If this includes adding to the company’s sizable debt load and increasing the common share count, so be it.
These measures could have unfortunate long-term consequences for AMC Entertainment and its shareholders. Really, the best move to make now is to sell AMC stock if you own it. And if you don’t own the stock, you can just avoid it altogether. It’s better to grab some popcorn and watch this strange story unfold from the sidelines.
