Will AMC Share Prices Continue to Rise?

The recent influx of funds into AMC Entertainment, raising $230.5 million from Mudrick Capital Management, has sparked discussions about the company's future and whether its share prices will continue to rise. This news follows a significant increase in AMC shares, rising nearly 13% in the pre-market session of June 1, reflecting trader confidence in the company's plans for growth and strategic investments.

Investment Injects Positive Change

AMC plans to use this capital to pursue value creating acquisitions of theatre assets and leases, and to enhance the consumer appeal of its theatres. The company also aims to reduce its debt, which has been a significant burden given that it reported a net loss in four consecutive quarters due to the closure of most of its movie theaters during the last few months.

The stock has surged by nearly 12x from its low in October 2020, partly due to a short squeeze and now primarily driven by expectations for future profitability. The current price is more indicative of anticipated earnings rather than current year earnings. This highlights the challenges the film exhibition business is facing, particularly the impact of the COVID-19 pandemic and the shift in how movies are being released.

Challenges and Uncertainties

Given the uncertainty surrounding the return of moviegoers and the ongoing distribution of films, it's crucial to consider several factors impacting AMC's future. The psychology of the post-pandemic audience suggests that risk-averse individuals may continue to avoid large crowds, potentially even after vaccination. This could result in a shift in the target audience for movies, catering more to younger demographics and small independent films.

The reduced occupancy in theaters could lead to higher ticket prices to maintain revenue levels, which would disproportionately affect smaller theater chains, especially those in rural areas. Studios now have the option to release movies on their own platforms, which further complicates the traditional business model of large theater chains.

Investment Valuation and Outlook

Looking at AMC's share dilution over the past years, from 100 million shares in 2019 to 450 million today, it's evident that the share price is heavily influenced by future earnings potential rather than immediate profits. Analysts and investors are now primarily focused on the company's ability to rebound and its strategy to attract and retain audiences post-pandemic.

Given that the 5-year price target stood at $33 in November 2016, it appears that purchasing the stock at the current level of $29.50 might not present the best value proposition, especially with the high risk of continued uncertainty in the film exhibition industry. This raised capital injection is a positive signal, but future price movements will largely depend on the company's ability to execute its strategic plans effectively.

Conclusion

While AMC's new capital investment is a positive move, the outlook on whether it will lead to a sustained rise in share prices is uncertain. The factors such as changing audience behavior, distribution patterns, and the competitive landscape post-pandemic will play a crucial role in determining the company's future success. Investors should carefully consider these elements before making any investment decisions.