The US box office made a spectacular comeback in the third quarter with ticket sales hitting a number not seen since the start of the pandemic.
But the world’s largest cinema chain, AMC Entertainment Holdings Inc (NYSE: AMC), may not be able to capitalize on that rebound – at least not fully.
Why? Because the company has significant debt on its balance sheet that continues to weigh on its share price. AMC stock is currently down more than 35% versus its year-to-date high in May.
AMC stock remains a risky bet
Adam Aron – the chief executive of AMC Entertainment focused on taking over other cinema chains and enabling a more luxurious experience for customers at his company’s theatres between 2015 and 2019.
But the strategic move aimed at future growth and expansion slapped $5 billion debt on its balance sheet by the time the health crisis forced movie theatres and Hollywood at large into a temporary shutdown.
AMC has aggressively tried to improve its balance sheet in recent years but still has over $4 billion in long-term debt at writing.
The company’s management has successfully refinanced and extended debt maturities, but “they are still paying pretty high interest rates on it” which could remain a headwind for AMC stock, as per B. Riley analyst Eric Wold.
AMC Entertainment continues to lose money
AMC made interest payments worth about $100 million that prevented the cinema chain from surging back into profitability even though revenue surpassed spending in its third financial quarter.
Shares of the entertainment company remain a risky investment as it lost $21 million in Q3 and is unlikely to be “consistently profitable for several years,” Wold told clients in a research note last week.
Additionally, global attendance was down 12% at AMC Entertainment despite the box office rebound while Cinemark saw a 2.4% decline only.
That’s another red flag for AMC stock as it may suggest the customer experience, the market strategy, or perhaps the geographic locations of the company’s theatres are not particularly sitting well with its customer base.
Could AMC shares relish another short squeeze?
B. Riley is not entirely convinced that AMC Entertainment will be able to materially improve its market share in the coming year.
The investment firm, therefore, lowered its 2025 estimates for the New York-listed firm this month. Short interest in AMC stock has also been declining of late that eliminates the possibility of another short squeeze as well.
On the plus side, AMC Entertainment Holdings Inc reported $13.5 billion in revenue for its third quarter last week – a tad above the $1.33 billion that experts had forecast.
The Street-high price target of $6.0 suggests potential for a 35% upside in AMC shares from here.
This post US box office rebounds: are better days ahead for AMC stock? may be modified as updates unfold
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