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The AMC Entertainment Holdings (NYSE:AMC) share price has utterly collapsed in 2022. The shares are now trading 80% cheaper than they were on 1 January.
City analysts largely consider the world’s largest cinema chain as a stock to avoid heading into 2023. Stock screener Digital Look says five brokers with ratings on AMC shares class them as a ‘sell’. Two share a neutral rating on the stock. Not a single analyst has put a ‘buy’ on the business.
But forecasters don’t always get it right. Could now actually be a good time to pick up this fallen US stock?
Reasons to buy…
A weak slate of movie releases has battered revenues at cinema chains in 2022. The good news, though, is that the schedule looks far stronger for next year. This could lead to an explosion in ticket sales and by extension ignite demand for cinema operators’ pricey popcorn and fizzy drinks.
Superhero movies continue to be a huge cinema attraction. And in the New Year fresh entries in the Guardians of the Galaxy, Spider-Man and Ant-Man franchises are on their way. Other major blockbusters are in the pipeline too.
AMC is in the box seat to profit from the rebound. Its 10,500 screens makes it the biggest cinema chain on the planet. And perhaps encouragingly, it’s seeking to add to its footprint.
Last week it ended talks with Cineworld to snap up some of its ailing rival’s theatres. But it could potentially return to the table at a later date. It might also seek acquisition targets elsewhere.
…And more reasons to avoid
Okay, the cinema industry might be recovering from its recent depths. But there remain big doubts over whether it will return to pre-pandemic levels.
Huge technological changes mean a night at the movies doesn’t carry the same lustre as it once did. Streaming services like Netflix and Amazon Prime give viewers thousands of movies to choose from. Modern television sets, with their high definitions and huge screens also give consumers an excellent viewing experience.
In the short term AMC could struggle to attract customers due to the cost of living crisis too. The cost of admission isn’t as cheap as it once was. And sales of its expensive snacks and beverages — a huge revenues generator in their own right — could also slump as people cut back.
This is a particularly concerning scenario given the huge debts the business has on its books right now. Net debt was a whopping $5.5bn as of June.
Poor ticket sales could have serious implications on AMC’s ability to pay this back. And in the meantime the business is paying increasingly gigantic sums to service it as interest rates rise.
The verdict on AMC shares
The cinema industry faces more extreme difficulties in 2023 and beyond. And AMC’s massive debt levels adds even more danger for investors. I’d rather invest in less risky US and UK stocks right now.