People are back to seeing movies. As a result, AMC Entertainment (AMC) is returning to making profits, and just recently started acquiring more theaters. Moreover, after peaking again last month, AMC stock is now down to a point where it is worth buying.
AMC’s earnings for the fourth quarter were its strongest quarterly results in two full years. It did have a net loss of $134 million, but this included non-cash charges and adjustments. After adjusting for these one-time expenses, the net loss was just $57.2 million. AMC is not due to announce its Q1 earnings until the first week of June.
But more importantly, AMC said its net cash provided by operating activities in Q4 was positive $46.5 million. In addition, its free cash flow (FCF) was also positive at $8 million for the quarter. This means that the company has for all intents and purposes stopped burning through cash.
In fact, the company is confident enough in its cash flow that it started buying theater locations. On April 12, AMC said it had acquired seven movie locations in Connecticut, upstate New York, and Annapolis, Maryland. This will bring it 66 new movie screens and it may actually acquire more from the same owners.
No purchase price was announced but this will likely show up in its second-quarter earnings report. The key point here is that nothing in AMC’s debt covenants is preventing the company from growing its screens. That again implies that it is clearly producing free cash flow.
What AMC Stock Could Be Worth
After peaking at $29.44 on March 29, AMC stock has tumbled 44% to $16.69 as of April 25. This puts it squarely back in buy territory. For one, analysts now estimate that revenue this year will rise by 81% to $4.58 billion and by 15.5% to $5.29 billion next year. Given that AMC has a market capitalization of $8.58 billion, this means its price-to-sales metric is just 1.6 times 2023 forecast sales.
But more importantly, if we assume FCF margins reach just 5% by 2023, it could be producing $265 million in free cash flow by the end of next year. Therefore, using a 3% FCF yield metric, AMC could be worth $8.817 billion (i.e., $265m/0.03), or 4% higher.
Moreover, assuming a 2.5% FCF yield, AMC stock could be worth $10.6 billion, or 23.5% over today's $8.58 billion market cap. That puts its price target at $20.61 (i.e., 1.235 x $16.69). This is still well below its former peak price and shows that there is good upside in AMC stock.
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This is not financial advice and you should not rely on my analysis to buy or sell any stock. I am not undertaking to induce you to buy or sell any securities.
I am relying on the “publisher’s exclusion” in the Investment Advisers Act of 1940 to provide this information without any personalized or individualized investment advice.