Is AMC Entertainment's Stock Overvalued Or Undervalued?

AMC Entertainment Holdings Inc AMC shares have outperformed the S&P 500 in the past 12 months, generating a total return of 964.5%.

AMC’s stock had a wild ride in 2021, but investors may be wondering whether there’s any value to be found in AMC shares after its big run.

Earnings: A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value.

For comparison, the S&P 500’s PE is currently at about 29.5, nearly double its long-term average of 15.6. AMC doesn’t currently have a PE ratio because the company is not profitable. In the most recent quarter, AMC reported a net loss of $224.2 million.

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Growth: Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 20.9. Unfortunately, analysts are not expecting AMC to turn a profit over the next four quarters. The current consensus earnings per share estimate for AMC for 2022 is a 75-cent loss. AMC’s media/communication sector peers are currently averaging a 20.9 forward earnings multiple.

Yet when it comes to evaluating a stock, earnings aren't everything.

The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is about 1.0. Once again, without positive earnings, AMC doesn’t have a positive PEG ratio to use as a valuation gauge.

Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is 3.21, well above its long-term average of 1.63. AMC’s PS ratio is 7.5, more than double the S&P 500 average. AMC's PS ratio is also up 453% over the past five years, suggesting the stock is priced at the high end of its historical valuation range.

Finally, Wall Street analysts see little value in AMC stock over the next 12 months. The average analyst price target among the seven analysts covering AMC is $6, suggesting about 73.4% downside from current levels.

The Verdict: At today's price, AMC stock appears to be extremely overvalued based on a sampling of common fundamental valuation metrics.