Whenever I think AMC Entertainment (NYSE:AMC) stock is ready for the scrap heap even if this dead cat bounce re-energizes the meme-stock crowd. AMC suffered considerable damage in 2023, down nearly 78%.
I’ve long believed that AMC stock was a dud, but I will say one thing: it is resilient. It just won’t die, even though it should. Don’t even think about buying its stock. Here’s why.
Dumb and Dumber
InvestorPlace’s Eddie Pan recently wrote about AMC cutting $62 million of its debt and raising $350 million from its at-the-market offering of 48 million shares at an average price of $7.29. As I write this, its shares are down nearly 8% relative to its offering price.
Forget Wall Street, the people buying AMC stock at $7.29 are dumb and dumber.
CEO Adam Aron highlighted all of his incredible moves in 2023 to keep the movie theater chain alive and kicking. Unbelievably, it exchanged $12.3 million of its 2026 10% second lien notes for 1.6 million shares of its stock at a vomit-inducing $8.19 a share.
My colleague discussed how the share count had increased by 55% in 2023. However, if you include the 48 million shares from the ATM and 1.6 million from the debt exchange, you get approximately 248 million shares outstanding [198.4 million as of Nov. 8 + 49.6 million from December’s moves], 136% higher than the 105 million on December 31, 2022.
In August, AMC did a 1-for-10 reverse split. So, pre-split, it finished 2022 with 1.05 billion shares. That’s 5x the 207.6 million outstanding at the end of 2019, before the pandemic.
Adam Aron has increased the share count eleven-fold over the past 48 months. A good company does that in reverse through share repurchases.
Boasting about raising $865 million in equity and lowering its liabilities by $440 million in 2023, he papers over the fact he’s created the public company version of the U.S. government. If you need the money, just print some more. We know the bill always comes due.
Is Adam Aron a Savior?
InvestorPlace contributor Gary Stern recently discussed Barrington Research Senior Research Analyst James Goss’s observations about AMC. Although the analyst doesn’t think the share price is about to take off, he rates it “Market Perform,” the equivalent of “Hold.”
The analyst points out that AMC’s problem isn’t the box office but the debt piled on the company. Goss believes that Aron has done a “relatively” good job turning around the company. I would wholeheartedly disagree with that assessment.
If not for the stupidity of retail and institutional investors buying all the stock issued by the company, AMC would most likely be dead and buried already.
And let’s not forget about the boneheaded move to invest $28 million in junior miner Hycroft Mining Holding (NASDAQ:HYMC) in March 2022. Aron said it was diversification.
Well, misery loves company. Hycroft did its own 1-for-10 reverse split in November. AMC got 23.4 million shares of HYMC stock plus warrants to buy 23.4 million more at $1.07 a share. AMC paid $1.19 a unit, so the shares are worth $4.47 million, and the 2.3 million warrants (1-for-10 reverse split) have an exercise price of $10.70, nearly 6x the current price.
In what universe is that considered smart capital allocation?
My grandfather ran Famous Players in Canada in the 1960s. It’s now owned by Cineplex (OTCMKTS:CPXGF) but was owned by Paramount Pictures at the time. Diversification in those days meant investing in seat companies and other theater-related businesses, including cable, radio and TV broadcasting, and real estate.
No mining companies.
The kiss of death in the theater business, or any business, is excessive debt.
When Adam Aron joined AMC in January 2016, it had $2.01 billion in total debt. As of Sept. 30, it was $9.32 billion. So, not only has he increased the share count by 11-fold, but he’s also boosted total debt by nearly five-fold.
I don’t see how he’s remotely close to being AMC’s savior.
On the date of publication, Will Ashworth 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.
