To The Moon

$AMC Entertainment(AMC)$

Key Points

• AMC will refocus its marketing to bring its popular popcorn to store shelves.
• AMC's theater business will probably continue to struggle.
• AMC stock is down over 30% for the year but up nearly 800% since the beginning of 2021.

AMC Entertainment Holdings(NYSE:AMC), the world's largest movie theater chain with more than 11,000 screens, has been exploring several strategies over the past several years for reviving the struggling company. Its latest side hustle is the decision to market its popcorn outside of movie theaters.

Unfortunately, it's unlikely that succeeding with popcorn will have any direct bearing on whether its core movie theater business fully recovers from the hits it has taken. Additionally, a rising stock price depends more on continuing success than merely surviving. This suggests that the move to marketing popcorn won't be the answer for thisentertainment stock.

AMC's latest strategy

AMC just announced that it has hired Ellen Copaken to take over as its vice president of growth strategy, beginning Feb. 18. This move is related to the company's November announcement that it would sell its AMC Perfectly Popcorn outside of movie theaters. Copaken won recognition with stints atPepsiCoandHostess Brandsfor her marketing and brand management successes, and such marketing leadership could help AMC succeed in the popcorn market.

Global Industry Analysts projects the worldwide popcorn market will grow from about $11 billion in 2020 to above $16 billion in 2026, a 6% compound annual growth rate. As the No. 1 seller of movie theater popcorn globally, AMC could take advantage of that rising demand. This popularity should also help it compete with popular brands likeConagra's Orville Redenbacher popcorn and with Pop Secret, a brand owned byCampbell Soup.

AMC's popcorn is definitely popular. Investors might recall when AMC stock nearly doubled in price after the company announced a free popcorn giveaway for AMC shareholders. Although AMC's popcorn still has to prove itself on the market, investors should be encouraged by this reaction.

The state of AMC stock

But those same investors have good reason to question how much a successful popcorn business will actually help the average AMC shareholder. AMC is still an enterprise that's facing significant challenges.

One issue is the continuing technological improvements being made available for use in home theaters. The more these systems mimic the theater experience, the more lost revenue from those staying home, even if they choose to eat AMC popcorn while watching from home. Additionally, the proliferation of video games, online videos, and podcasts adds to the increasing competition for potential customers' time and attention.

It's likely thatAMC's good news isn't actually all that goodfrom a financial standpoint. The company recently released preliminary results for its fourth quarter. The $1.17 billion in revenue for Q4 was far ahead of the $163 million in the year-ago quarter hampered by pandemic-related closures. Still, the company projects losses of between $195 million and $115 million in Q4. Moreover, its revenue lags the $1.45 billion generated in Q4 2019. And consensus analyst projections for total 2021 revenue of just over $4.62 billion are well under the $5.47 billion in revenue for 2019, a year when AMC lost $112 million on an adjusted basis.

Investors can still take solace that AMC stock is well above the $2-per-share level where it sold at the beginning of 2021 before meme stock traders took an interest. However, since peaking at an intraday high of $72.62 per share in early June 2021, it has lost close to three-fourths of its value. This includes a loss of over 30% since the beginning of the year.

Also, while the price-to-sales (P/S) ratio of 4.8 may not seem high, it is far above the 0.2 P/S ratio it supported before it became a meme stock.Cinemark Holdings, one of its main rivals, sells for about 2.1 times sales, a difference that could make AMC stock appear relatively expensive.

Popcorn is not enough

Although AMC may succeed in the popcorn business, shareholders should not expect it to help AMC stock. While consumers seem to like its popcorn, it will face multiple competitors at grocery stores. Moreover, a profitable popcorn business will not address the challenges involved in bringing moviegoers back into its theaters. While its outlook for survival may look more promising, it does not appear positioned for the level of success needed to propel AMC stock higher on an ongoing, long-term basis.