Adam Aron, the CEO of global movie-theater chain AMC Entertainment (NYSE:AMC), cited the new Barbie movie in the company’s latest quarterly earnings report. I suppose we should have expected Aron to be enthused about Barbie‘s success. But will it be enough to bring AMC stock back to its former glory? Not likely.
AMC Entertainment’s second-quarter results weren’t too bad, so AMC Entertainment common shares don’t deserve an outright “F” grade.
However, caution is definitely advised as a recent legal development raises serious concerns about AMC Entertainment.
AMC Entertainment’s Profitable Quarter
For what it’s worth, AMC Entertainment’s revenue increased 15.6% year over year in 2023’s second quarter. The company posted $8.6 million in GAAP-measured net income, as opposed to the $121.6 million net loss from the year-earlier quarter.
This doesn’t mean AMC Entertainment is out of the woods yet, financially speaking. The company still reported negative free cash flow and, in terms of adjusted diluted non-GAAP EPS, AMC Entertainment reported a breakeven result for Q2.
Of course, Aron had to mention the blockbuster hit movie Barbie in AMC Entertainment’s quarterly press release. The CEO cited Barbie as a contributor to the current quarter’s “explosive start.”
Yet, it’s too soon for AMC Entertainment to declare victory in the third quarter. This quarter will undoubtedly be impacted by writers’ strikes. Besides, Barbie won’t likely be a top box-office draw for the entire three months.
The point is, investors shouldn’t be too quick to conclude that Barbie will “keep the party going” for AMC Entertainment.
AMC Stock Plummets Over Dilution Concerns
Here’s an issue that evidently Barbie can’t solve. AMC stock plunged 25% in after-hours trading on Aug. 11, and it’s not difficult to figure out what prompted the selloff.
In a Delaware court, a judge approved AMC Entertainment’s plan to convert some of its AMC Preferred Equity Units (NYSE:APE) into AMC Entertainment common shares.
This should have the effect of increasing the pool of AMC common shares while decreasing the total count of APE preferred shares. Thus, according to Bloomberg, “AMC shares sank as much as 34% in postmarket trading, while the preferred shares spiked more than 29%.”
How much are these shares worth? We’ve seen estimates of “as much as $120 million” and $129 million, but there’s a lot of money and a lot of shares under consideration.
The Bloomberg reported noted that “thousands of” AMC common shareholders opposed this settlement, “citing the dilution of their shares among other concerns.” Clearly, share dilution wasn’t just a passing concern; it was the primary point of contention, and justifiably so.
AMC Stock: Looking Beyond Barbie
AMC Entertainment needs more than one blockbuster film to stay profitable/breakeven in the long run. AMC Entertainment’s negative free cash flow remains an ongoing concern.
Also, AMC Entertainment’s apparent legal victory isn’t making the company’s common shareholders happy. Indeed, it’s bothersome that AMC Entertainment is willing to take dilutive measures like this.
When all is said and done, AMC stock gets a “D” grade and isn’t a high-conviction pick. After the current Barbie craze passes, the company will need to demonstrate some follow-through. So, keep your eye on AMC Entertainment but don’t feel compelled to invest in it now.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.