Last year saw shifting consumer sentiment regarding entertainment spending as the economic environment worsened. As recession concerns linger amid the still-high inflation and anticipated continuation of rate hikes, consumers are projected to cut back spending on recreation and entertainment.
So, fundamentally weak stocks AMC Entertainment Holdings, Inc. (AMC – Get Rating), Cinemark Holdings, Inc. (CNK – Get Rating), and National CineMedia, Inc. (NCMI – Get Rating) might be best avoided or sold short.
Technological developments and rising demand for digital entertainment are expected to boost the sector’s growth in the long term. OTT (over-the-top) media services have emerged as one of the industry’s most significant disruptors. However, inflation has also triggered decreased spending on entertainment subscriptions for streaming platforms.
The consumer price index rose by 6% from a year earlier. While inflation is slowly but steadily declining, Silicon Valley Bank and Signature Bank’s failures are raising fears of a “hard landing.”
Michael Furtschegger, global head of entertainment at AGCS, said, “Our entertainment clients are feeling the effects of inflation, with increased production and live-event costs.”
AMC Entertainment Holdings, Inc. (AMC – Get Rating)
AMC engages in the theatrical exhibition business. The company owns, operates, and has interests in theaters in the United States and Europe.
AMC’s forward EV/Sales of 2.59x is 39.2% higher than the industry average of 1.86x. Its forward EV/EBITDA of 40.92x is 396.5% higher than the industry average of 8.24x.
AMC’s trailing-12-month gross profit margin of 7.43% is 85% lower than the industry average of 49.63%. Its trailing-12-month ROTA of negative 10.66% is lower than the industry average of 1.32%.
AMC’s revenues decreased 15.4% year-over-year to $990.90 million in the fourth quarter that ended December 31, 2022. The company’s adjusted EBITDA was $14.50 million compared to $159.20 million for the fourth quarter of 2021. The company’s adjusted net loss and adjusted net loss per share widened by 167.3% and 133.3% year-over-year to $152.90 million and $0.14, respectively.
AMC’s EPS is expected to decline by 217% per annum for the next five years. It missed EPS estimates in three of four trailing quarters. Over the past six months, the stock has lost 53.2% to close the last trading session at $4.64.
AMC’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
