AMC stock price is at elevated risk of shareholder dilution
- The AMC Entertainment stock price has pulled back recently.
- There are elevated risks of shareholder dilution in 2023.
- AMC has become a cash incinerator as the industry stages a slow recovery
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AMC (NYSE: AMC) stock price has recoiled in the past three straight days as concerns about the company remains. The stock was trading at $6 on Thursday, a few points below this month’s high of $8.50. It has plunged by over 87% from the highest point in 2021, meaning that it has underperformed the S&P 500 and Nasdaq 100 indices.
Cash burning machine
AMC Entertainment is a cash-burning machine that presents more risks to investors than opportunities. While the company offers a unique product, the reality is that it has not always been so profitable. In the past decade, the company has made over $36 billion in revenue and lost about $6 billion of it.
It is also a cash incinerator that lost over 60% of its cash on hand in 2022. During the year, the company’s revenue jumped to over $3.50 billion as movie theatres reopened. But with the cost of doing business rose, the company made a net loss of over $973 million. It had lost over $1.3 billion in 2021 and $4.5 billion in the previous year.
AMC’s balance sheet was saved by the meme investing frenzy that we experienced in 2021. However, it now seems that the situation is getting worse. It started 2022 with over $1.5 billion in cash and ended the year with $631 million. Therefore, unless the company sees robust revenue and earnings growth, there is a possibility that its cash position will worsen.
It is also worth noting that AMC also has a mountain of debt. Fortunately, its short-term debt load stands at about $20 million, which is manageable even as interest rates rise. Also, the long-term debt at $5.1 billion is still substantially higher than its historic average of less than $4 billion. Therefore, we can’t rule out a possibility of shareholder dilution this year.
AMC stock price forecast
So, is it safe to buy AMC Entertainment? The daily chart shows that the AMC share price has remained under pressure in the past few days. It is consolidating at the 50-day and 100-day moving averages and is slightly below the important resistance point at $8.50, the highest point on February 28. The Relative Strength Index (RSI) has moved back to the neutral point.
Therefore, the stock will likely continue falling as sellers target the key support level at $3.75, the lowest point on January 6. The stop-loss of this trade is at $8.40.