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AMC – The Popcorn Is Getting Stale

By Boris SchlossbergStock MarketsNov 16, 2021 01:58AM ET
www.investing.com/analysis/amc--the-popcorn-is-getting-stale-200608475
AMC – The Popcorn Is Getting Stale
By Boris Schlossberg   |  Nov 16, 2021 01:58AM ET
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AMC Entertainment Holdings (NYSE:AMC)—one of the great meme stock stories of the year—remains relatively close to its mania highs, but forward progress has come to a grinding halt and the longer that dynamic lasts the more likely the stock is to fall. 

  • Company’s business continues to bleed money
  • No escaping insolvency from the massive debt load
  • CEO sells $25M of stock

The AMC stock story was never about fundamentals, as what was essentially an insolvent company in structurally declining business carrying a massive debt load was simply seized by the Reddit crowd and buoyed to a valuation more than one hundred times its actual worth. While the company’s stock may trade on sentiment alone, its bonds require actual cash and therefore an actual business to service the debt load.  While AMC has enough cash to service its debt through 2022, it does not have enough money on hand to service its debt to 2023 as it continues to bleed money despite the general rebound in theater attendance and a near total slash of capital expenditures.

To that point the company’s bonds trade at a massive discount to the current market rates indicating that bondholders are expecting a prepackaged bankruptcy sometime within the next 18 months. The company’s only escape route from this predicament is to issue more stock, but it would need to get permission from shareholders which is unlikely to come given the fact that it would be highly dilutive. Meanwhile, the company’s CEO has been actively liquidating his own position to the tune of 625,000 shares last week at $40 a share for a cool 25 million dollars.

Over the next few years the movie theater business will become the radio of the entertainment business—a highly specialized niche reserved for mainly IMAX (NYSE:IMAX) blockbuster releases or an all in one dinner and a movie experience for suburban couples seeking to get out of the house once in a while. It may even repurpose itself as arenas for multiplayer e-sports events. Regardless of the path it takes, the movie theater business will never again possess even the fraction of the scale it once enjoyed as the pillar of mass entertainment. 

The basic model of AMC is actually not movies, but popcorn. All movie theater chains essentially break even on their movie offerings and make most of their money on high margin items like popcorn and snacks. As some snarky commenter on SeekingAlpha.com noted, “Popcorn as a Service is just not a viable business model.”

Up to now, the AMC stock remains bid on nothing more that the hopes and dreams of Reddit traders who envision the stock soaring to “100K” on what? AMC is not Tesla (NASDAQ:TSLA) which could at least make a claim to a multi trillion dollar addressable market. AMC market is actually shrinking, not growing, and while the stockholders could delude themselves with tales of grandeur, bondholders will demand cold hard cash which is unlikely to materialize as the company continues to bleed from operations even during the seasonally peak attendance of the 4th quarter. 

After the holidays, the doldrums of deep winter and empty theaters will likely slap the existing shareholder base into reality and as more long term calls begin to expire worthless, the underlying is likely to feel the pressure. Given that AMC is a meme stock and therefore could ignore the above thesis and stage one final vicious short covering rally, it is much better to express the bearish view through a risk controlled instrument like options.

The 40/20 June 17 2022 put vertical spread can be bought for roughly 7 to make 20 offering a good risk reward trade and ample time to let nature take its course. When it comes to AMC, the 'popcom' is getting stale and it’s generally wise to be on the same side of the trade as the insiders.

AMC – The Popcorn Is Getting Stale
 

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AMC – The Popcorn Is Getting Stale

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Comments (7)
Greg InParadise
Greg InParadise Nov 29, 2021 8:41AM ET
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Typical shill piece.
Dr Crunch
Dr Crunch Nov 18, 2021 10:04AM ET
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Excellent piece of journalism. All my friends on the AMC board LOVED it.
Robin Hood
RobinHdJr Nov 18, 2021 9:53AM ET
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I'm disappointed. No full disclosure as to whether the author holds any short AMC positions?  With FED doing insider trading and SEC not upholding rules on naked shorts, perhaps this is the brave new world we find ourselves in...
carol foulds
carol foulds Nov 18, 2021 9:36AM ET
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“Lawrence I don’t think you understand this trade.” 🤣
Brian Middleton
Brian Middleton Nov 17, 2021 8:21AM ET
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His agenda is obvious.
Benjamin Rose
Benjamin Rose Nov 17, 2021 12:12AM ET
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i just bought more just to spite this obviously bias article. Do better https://investing.com
Benjamin Rose
Benjamin Rose Nov 17, 2021 12:11AM ET
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what?
 
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