AMC Entertainment (NYSE:AMC) has been a favorite meme stock. Even with losses of 34% in 2022, AMC stock has gained approximately 90% in the past year. In its fourth-quarter and full-year 2021 results, Adam Aron, chairman and chief executive officer of AMC, stated that “AMC’s fourth- quarter 2021 results represent our strongest quarter in two full years” and that “while not yet where we want to be, our progress is substantial and unmistakable.” Should you get excited about AMC stock now due to the improvement in business performance?
AMC indeed showed an improvement in key metrics in FY21. Revenue increased to $1.17 billion versus $1.62 million in FY20. Operating metrics, like attendance in U.S. and international markets, increased 96.31% and 30.3%, respectively. However, the company remained unprofitable, even though it narrowed its net loss to negative $1.27 billion compared to negative $4.59 billion in FY20. AMC continued to burn cash, reporting a free cash flow of negative $706.5 million, lower than the free cash flow figure of negative $1.23 billion in FY20.
AMC’s decision to make a significant investment in Hycroft Mining (NASDAQ:HYMC), a company that is uncorrelated with AMC’s business model, should make AMC investors worried for two reasons. First, Hycroft Mining’s financials are not strong. It is losing money and burning cash. Why choose to invest in a money-losing company with poor fundamentals? How does this investment add value to AMC shareholders? I do not see any logic in this.
Second, it is obvious that AMC Entertainment is transforming into something other than just a company in the entertainment industry. I am not convinced that its shareholders will be happy with this radical change.
Analysts seem right to be bearish about AMC stock prospects. A one-year target of $10.45 on Yahoo! Finance and a median price target of $6 per share on CNN Business show disbelief that AMC stock will soon see better days. With a “net loss of 80 cents a share for 2022 and a net loss of 40 cents in 2023” expected, AMC stock is not a buy.
On the date of publication, Stavros Georgiadis, CFA did not have (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.