My Bullish Thesis

** Disclaimer ** Due to changed circumstances having to do with the Wall Street Bets/Robinhood Phenomenon some of the information on this page may have changed.

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Recommended Buy Price and Price Prediction

I have a cost basis on this stock of about $2 per share and this is the value at which I believe the company's stock price is most intriguing, but I recommend this stock as a buy anywhere under $4 per share.

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I believe that AMC will be worth $8 per share by January 1, 2022.

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CEO (Adam Maximilian Aron)

Besides just the fact that his middle name is "Maximillion" which is pretty damn cool in and of itself he co-owns the Philidelphia 76ers with Scott O'Neil. He has perviously served as CEO of Norwegian Cruise Lines from 1993 to 1996 and Vail Resorts (the second largest ski resort operator worldwide) from 1996 to 2006.

 

Adam Aron became CEO of AMC in 2015. Soon after, he spearheaded the acquisition of Odeon, UCI, and Carmike Cinemas in deals that collectively cost the company approximately $3B. As a result of these deals AMC became the largest exhibitionist of movies worldwide.

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The Bear Thesis

COVID-19

COVID-19 has had a profound impact on the world. Companies related to travel, leisure, art, and any other activity that requires the gathering of people in groups have been hit the hardest. Of these companies, AMC is one of the companies that was hit the hardest. AMC's business will continue to struggle as long as people avoid group activities (like going to the movies) out of fear of catching the virus.

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But wait... it gets worse. Due to AMC's position as the largest exhibitionist in the world, AMC was disproportionately impacted compared to its smaller peer, Cinemark. As a smaller exhibitionist during a time when movie theater revenues were almost nonexistent, Cinemark was able to take on less debt in the form of rent during the pandemic. That leads us to the balance sheet.

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The Times They are A'Changin

The exhibition industry has been on a steady decline for many years due to online streaming services, improvements in home theater technology, piracy, and shrinking theatrical release windows.

 

Historically, movie producers were required to release movies in theaters before they could be rented, and in rental stores before they could be bought and viewed at home. However, streaming services like Netflix, Disney+, and HBO Go have slowly deteriorated the release windows and turned the movie rental industry into a thing of history.

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Currently, movie producers are still required to release movies in theaters for at least 90 days before offering the movies on streaming services for home viewing. COVID-19 has challenged movie exhibitionist's hold over this 90 day window. See Article on 90-day Window.

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AMC's acquisition of Odeon, UCI, and Carmike Cinemas may have come at a bad time because the decline in AMC's share price slightly corresponds with an increase in Netflix's share price.

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Bankruptcy and the Balance Sheet

This section just looks at the numbers. You decide which points are bearish and which are bullish.

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Bankruptcy

AMC was caught pants down by the pandemic. Nobody could have predicted that a virus would sweep across the world and force the closure of movie theaters for 1.5-2 years and AMC did not keep enough money in the form of cash on their balance sheet to ride out the pandemic without taking on significant debt and liabilities. 

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Cash and Cash Equivalents

• In December 2019, AMC reported that they had $265M worth of cash on their balance sheet compared to Cinemark's $488M.

• In September 2020, AMC reported that they have $417M worth of cash on their balance sheet compared to Cinemark's $825M. 

 

AMC added $152M to the cash portion of their balance sheet.

Cinemark added $337M to the cash portion of their balance sheet.

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Debt

• In December of 2019, AMC reported that they had $4.733B worth of corporate borrowings compared to Cinemark's $1.771B

• In September of 2020, AMC reported that corporate borrowings increased to $5.803B compared to Cinemark's $2.366B.

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AMC's debt load increased by $1.07B.

Cinemark's debt load increased by $595M.

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Revenues

• For the period from January 1, 2019 to September 30, 2019 ("9 months ended"), AMC reported $4.023B worth of revenue compared to Cinemark's $2.494B during the same period

• For the period from January 1, 2020 to September 30, 2020 ("9 months ended"), AMC reported $1.079B worth of revenue compared to Cinemark's $588M during the same period.

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AMC's revenues decreased by $2.944B (73.17%) during the pandemic; and

Cinemark's revenues decreased by $1.906B (76.42%) during the pandemic.

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That's great to know... what does it mean?

Long story short, both of these companies are keeping more cash on the balance sheet to pay rent and keep the lights on during the pandemic and AMC took on significantly more debt than Cinemark.

 

However, AMC also had greater revenues before the pandemic and saw its revenues decline by a significantly lower percentage.

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Valuation and Market Sentiment

Many investors assume that AMC will eventually be forced to file for Chapter 11 bankruptcy because they have been unable to do business for the past year or two. This had lead investors to flee from the stock, and as a result AMC (which traded at about $7.50 per share before the pandemic) now trades for about $2-3. Investing in AMC is going against the grain and requires overcoming the "popular" market sentiment surrounding the stock. 

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However, as soon as market sentiment flips and investors realize that AMC is not going bankrupt investors will pile back into the stock and drive the price up to pre-pandemic levels (or much higher).

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The Bullish Thesis

Largest Exhibitionist Worldwide

1. AMC - AMC is the nation’s largest exhibitionist with 636 locations and 8,094 screens.

2. Regal Cinemas - Regal Cinemas is the second largest exhibitionist with 549 locations and 7,211 screens.

3. Cinemark ("CNK") - CNK is the third largest exhibitionist with 331 theaters and 4,517 screens.

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Regal is no longer a publicly traded company leaving CNK as AMC's closest publicly traded competitor. As the largest exhibitionist of movies worldwide, AMC's ticket sales and revenues typically outperform its competitors. We will dive deeper into financials below.

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Dividend

In normal market conditions, AMC is a dividend paying stock. Lets' not kid ourselves on this point though. Currently, AMC cannot pay a dividend and will not be able to do so for several years. However, purchasing AMC right now presents a very interesting opportunity for dividend investors.

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At $2 per share AMC's dividend yield is approximately 26%. At $3.50 per share AMC's dividend yield is still approximately 20%.

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These are unreal dividend yields, but for long term investors in the stock, as the share price rises you keep the dividend yield that you received when you purchased the stock.

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Long story short, purchasing a large quantity of AMC stock right now could pay TREMENDOUS dividends in the future if the company's revenues return to normal and AMC resumes paying a dividend.

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Pent up Demand

As a result of the COVID-19 pandemic, most of the world was forced to go into quarantine for some length of time and high risk businesses were unable to do any business during this time. Even though many businesses have been allowed to reopen, many businesses were only allowed to do so in a limited capacity, and "high risk" businesses have seen severe decreases in foot traffic.

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Quarantine is boring and everyone is tired of it. People want to travel, and go to the movies, and concerts, and sporting events. With the release of the COVID-19 vaccine the travel, leisure, art, and other industries reliant on large groups of people should return to normal.

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There were no large releases of movies in theaters in 2020. People are bored and dying to get out of the house for entertainment. Movies are a cheap way of entertaining people and theater attendance should return to normal or better to normal in 2022 or 2023.

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Conclusion

AMC is a great company at a great price. The company might go bankrupt, but even bankruptcy doesn't necessarily mean that a company ceases to operate. AMC's business was hurt by COVID-19 in the short term, but if the company can avoid bankruptcy and revenues return, the stock price could double, the dividend could return, and investors who believed in the company when times were tough may be handsomely rewarded.