AMC Entertainment Holdings, Inc. (AMC) surpassed revenue and EPS estimates by 0.8% and 18.4%, respectively, in the 2022 third quarter.

However, the movie and entertainment industry continues to underperform and is still below pre-pandemic levels. Amid a scarcity of movie releases, AMC might witness a further downtrend. According to ScreenVision CEO John Partilla, the number of movies screened at more than 2,000 screens totaled 60% of 2019 levels, which could be better.

Also, AMC’s CEO Adam Aron is apprehensive of the industry’s overall performance as the number of films is still down 20%-30% from pre-pandemic levels. “Above all else, is that movie theater operators need more movies,” he said.

AMC has gained 8% over the past month to close the last trading session at $6.07. However, it has lost 63.7% year-to-date and 69.5% over the past year.

Here is what could shape AMC’s performance in the near term:

Bottom Line in the Red

For the third quarter that ended September 30, 2022, AMC’s total revenues came in at $968.40 million, up 26.9% year-over-year. However, its number of screens operated came in at 10,518, down marginally year-over-year. Also, its operating costs and expenses came in at $1.08 billion, up 19.3% year-over-year.

Moreover, its net loss came in at $226.90 million, up marginally year-over-year, while its loss per share remained constant at $0.20.

Mixed Valuations

AMC’s forward Price/Sales of 0.76x is 37.9% lower than the industry average of 1.23x.

However, its forward EV/Sales of 3.07x is 64.1% higher than the industry average of 1.87x, while its forward EV/EBITDA of 102.09x is substantially higher than the industry average of 8.18x. 

Poor Profitability

AMC’s trailing-12-month gross profit margin of 10.73% is 78.7% lower than the industry average of 50.32%. Its trailing-12-month EBITDA margin of 2.82% is 84.3% lower than the industry average of 18.00%.

In addition, its trailing-12-month negative net income margin of 20.05% is lower than the industry average of 4.51%. Also, its trailing-12-month ROTC and ROTA of negative 2.06% and 8.91% are lower than the industry averages of 4.11% and 2.23%, respectively.

POWR Ratings Reflect Bleak Prospects

AMC has an overall rating of D, equating to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

AMC has an F grade for Stability, in sync with its beta of 1.76.

It has a D grade for Quality, consistent with its negative profitability margins. Also, it has a C grade for Growth, consistent with its mixed financials in the latest reported quarter.

AMC is ranked last in the 5-stock Entertainment - Movies/Studios industry. The industry is rated F.

Click here for the additional POWR Ratings for AMC (Growth, Value, Momentum, Sentiment).

View all the top stocks in the Entertainment – Movies/Studios industry here.

Bottom Line

It might take a while for AMC to reverse its losses. Moreover, analysts expect its EPS to decline by 217% per annum over the next five years. Given the stock’s poor profitability and the industry headwinds, I think AMC might be best avoided now.

AMC shares rose $0.10 (+1.65%) in premarket trading Friday. Year-to-date, AMC has declined -77.68%, versus a -15.61% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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