Is the AMC Entertainment share price a bubble?

first_imgThe bull case for the AMC share priceIgnoring the influence from speculators buying to profit from the short-squeeze, there are some reasons to be optimistic about the long-term potential of the AMC share price. And one of the main ones is the reopening of the US economy.5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…Much like here in the UK, for a prolonged period of 2020, cinemas around America remained closed. This decimated the firm’s gross income, with total revenue falling to $1.24bn versus $5.47bn a year before. Fortunately, cinemas have now reopened in most states, albeit at a reduced capacity.So the money is finally flowing again. And due to the relatively rapid rollout of the Covid-19 vaccine, around 60% of the US population aged 18 and up have received their first dose. This is potentially excellent news for the AMC management team, as an accelerated vaccination rate might enable them to increase their cinema capacity sooner than expected.Another encouraging sign is the surprisingly stellar performance of Godzilla vs Kong that debuted in March this year. Despite many cinemas being closed worldwide, the film has become the highest-grossing release since the pandemic began. Thus demonstrating large pent-up demand among consumers to return to the big screen experience.This sounds like it could be time for the AMC share price to make a comeback after the chaos of 2020. But as promising as it seems, one look at the balance sheet made me seriously sceptical over the long-term potential of this business.Dwindling AMC potential growthDisregarding the exceptional year that was 2020, the business behind the AMC share price does not look particularly attractive to me. Why? There are a few reasons. First and foremost is the contraction of its industry. Looking at historical data, the volume of cinema tickets sold has been declining since 2002.Cinema operators like AMC have managed to offset the reduced number of tickets sold by increasing confectionary prices. However, now that streaming services like Netflix and Disney+ are either releasing films directly to their platforms or reducing the window of cinema exclusivity, maintaining growth has become quite challenging.To overcome this issue, AMC has been employing acquisitive strategies to expand its chain of locations. But this has led to an enormous build-up of debt that has pushed it to the brink of bankruptcy. In 2019, AMC had over $4.8bn of debt on its balance sheet that meant a $317m interest bill in 2020. That’s nearly three times more than the firm’s operating profits. And last year, this level of debt increased by a further $1bn.The management team is now turning to investors to raise additional capital to keep its lights on. And so, with a shrinking market size, an enormous pile of loan obligations, and a massive amount of equity dilution ahead, the AMC share price definitely looks like a bubble waiting to burst, in my opinion. Therefore I won’t be adding the shares to my portfolio. I’m sure you’ll agree that’s quite the statement from Motley Fool Co-Founder Tom Gardner.But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.What’s more, we firmly believe there’s still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.And right now, we’re giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool. Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge! Zaven Boyrazian does not own shares in AMC Entertainment. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Zaven Boyrazian | Tuesday, 1st June, 2021 | More on: AMC Image source: Getty Images. I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. I think there are far better investment opportunities out there. For example, did you know:center_img See all posts by Zaven Boyrazian 2021 has been an exciting year for retail investors. Following the infamous short-squeeze on GameStop‘s share price, AMC Entertainment (NYSE:AMC) has become the new darling among speculators. Over the last 12 months, the AMC share price is up over 400%. And year-to-date, the stock price has surged by 12 times. That’s some extraordinary growth. But is this a bubble about to burst? “This Stock Could Be Like Buying Amazon in 1997” Simply click below to discover how you can take advantage of this. Enter Your Email Address Is the AMC Entertainment share price a bubble? Our 6 ‘Best Buys Now’ Shareslast_img

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