Earlier this week, US cinema operator AMC (NYSE: AMC) announced that in the near future, it will accept Bitcoin as payment. It seems that the group is trying to appeal to young investors that have turned AMC into a ‘meme stock’ this year.
Does this development impact the investment case for AMC stock? Here’s my take.
AMC: a company facing big challenges
In my view, this news doesn’t change the outlook for the company, or the stock. I still believe the AMC shares have considerable downside risk from here.
Its half-year results, published earlier this week, showed the group is continuing to experience huge challenges. For the first six months of the year, revenue came in at $593m compared to $960m in H1 2020. Attendance was down 52%.
In the near term, I think it’s likely AMC will continue struggling, due to Covid-19. In an earnings call after the H1 results were published, CEO Adam Aron said ticket revenue in the third quarter of 2021 was only on track to reach 45% of 2019 levels. That’s concerning, especially when you consider the group has debt of around $10bn on its balance sheet.
Meanwhile, AMC looks set to experience challenges in the long term too. These days, many people have big-screen TVs at home, and it’s very easy to stream movies via platforms such as Netflix, Disney, and Amazon Prime.
People are still likely to go to movies in the future, but I don’t think consumer demand will be as high as it was in the past. Even if the company accepts Bitcoin for payment.
AMC’s share price is too high
As for AMC stock, it remains extremely overvalued, in my opinion. At its current share price, AMC has a market-cap of around $16bn. The valuation makes no sense to me at all. That’s over 20 times the company’s market-cap at the end of 2019. Currently, the average share price target for AMC is just $6.84. That implies downside of nearly 80%.
It’s worth noting AMC still has a high level of short interest (20%+), which tells us that institutions are betting that the share price will fall. Retail investors and traders have managed to force short squeezes here in the past, however, I wouldn’t write off the short sellers just yet.
A risky stock
I will point out there have been some positive developments recently. Last quarter, for example, the company raised $1.25bn of new equity capital. This has strengthened its financial position a little. At the end of the quarter, the group had liquidity of more than $2bn – double the previous highest ever amount in the company’s history.
However, overall, I see AMC stock as very risky. The news the company is set to accept Bitcoin hasn’t changed my view on the shares.
The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.