No Feel-Good Hollywood Ending for AMC Stock

Stocks to sell

Good news for AMC Entertainment (NYSE:AMC) and its army of Ape investors? The movie theater chain reported third quarter results that topped forecasts. Revenue surged 45% thanks to a “Barbenheimer” box office boost. And the company even reported a surprise profit. The end of the actor union’s strike in Hollywood, coming after writers also agreed to a new contract, also eliminates some uncertainty about the future.

AMC Follows Up Good Earnings With Bad News for Investors

Now for the bad news. AMC announced Thursday morning that it was planning a new share offering, proposing a sale of $350 million in common stock. AMC investors focused more on the potential dilution than the good earnings and resolution of the entertainment industry’s labor woes. Shares are down 10% in afternoon trading.

AMC has always been a risky stock since the industry faces numerous challenges. More people are staying home and streaming binge-worthy TV shows and original movies from Netflix (NASDAQ:NFLX), Disney (NYSE:DIS), Amazon (NASDAQ:AMZN) and other studios on their TVs, laptops, tablets, and smartphones. Covid-19 also disrupted the theater biz in 2020… and cinephiles aren’t going to the multiplex as often as they did before the pandemic. AMC chairman and CEO Adam Aron conceded as much in the earnings release, saying that “attendance at the domestic box office in the quarter was still 16% below comparable 2019 levels.”

Still, there are reasons for industry optimism. The success of Barbie and Oppenheimer proves that people are willing to have a big theater experience for the right movies: event-driven stories with top stars in front of and behind the camera. The blockbuster numbers for Taylor Swift’s The Eras Tour concert movie also are a good sign for the fourth quarter… and it shows that theaters don’t have to rely on Hollywood to get butts into seats. Music superstar Beyoncé could also give theaters a lift with her upcoming Renaissance performance film.

The Bottom Line on AMC Stock Now

But this might be better news for other theater companies that aren’t flooding the market with new shares that will wind up reducing the value of existing investors. The fact that AMC’s shares are down 75% this year while rival Cinemark (NYSE:CNK) has soared almost 80% doesn’t exactly qualify as an Alfred Hitchcock or M. Night Shyamalan type of plot twist. Shares of theater chain owner Marcus (NYSE:MCS) and giant movie screen operator IMAX (NYSE:IMAX) are both up this year as well.

That’s why investors hoping for AMC to regain some of its Reddit-fueled Ape hype might be better off avoiding the stock and considering shares of its competitors instead. They’ll benefit more from a continued box office revival. So will the big studios now that the Hollywood strikes have reached a happy ending. Pass the popcorn. And take a pass on AMC stock.

As of this writing, Paul R. La Monica did not hold (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.

Paul R. La Monica is a veteran financial journalist with nearly 30 years experience (including more than 20 at CNN) covering the stock market and other asset classes, the economy and other corporate and business news.

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