The enthusiastic remarks of AMC (NYSE:AMC) Chief Executive Officer (CEO) Adam Aron after the company’s better-than-expected first-quarter results seemed misplaced. His comments reminded me of sports teams that had a horrible win-lose record and are losing by a wide margin in a game they’re currently playing, but celebrate one good play they made as if they had just won the championship. Like all losing sports teams, AMC has many problems, making AMC stock a sell.
Among the difficulties facing the movie-theater owner are depressed box office sales compared to pre-pandemic levels, the tremendous weakening of meme-stock investors, and a huge mountain of debt. Meanwhile, the shares’ valuation remains way too high.
Celebration Amid a Tough Environment
As I noted in a recent news story on AMC stock, Aron said in a statement that “given the recent popularity of several movies, there ‘should [be] no doubt about the enduring appeal of theatrical exhibition.’”
Nevertheless, at the end of last month, CNBC reported that “box office analysts and movie theater owners” expect total domestic U.S. movie revenue to come in below $8.8 billion. Conversely, in 2019, the last full year before the coronavirus pandemic, U.S. theaters generated revenue of $11.4 billion. So, validating my thesis that seeing movies at theaters has become much less popular in America, 2022 U.S. box office revenue will still be well below 2019 levels.
As is well-known, AMC stock rallied last year due to the enthusiasm of meme-stock investors. But those investors have been punished a great deal this year, with their favorites like Coinbase (NASDAQ:COIN), GameStop (NYSE:GME), Bitcoin (BTC), and AMC stock posting monster declines since November. Because of their financial woes, the ability of meme-stock investors to come to the rescue of AMC’s shares has been greatly diminished.
Debt and Valuation
As of the end of last quarter, AMC had nearly $11 billion of debt. Meanwhile, its enterprise value/revenue ratio, which takes into account the company’s debt and cash, is 6.6. Despite the recent decline in AMC stock, that valuation is still very high for an unprofitable company in a reeling sector.
In light of all these issues, I continue to recommend that investors sell the shares.
On the date of publication, Larry Ramer was short COIN stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.