Why This AMC Entertainment Analyst Says Share Price 'Out Of Touch' With Fundamentals

After stratospheric gains this week, AMC Entertainment Holdings, Inc. AMC shares are finally returning to earth thanks to the stock offerings announced by the company and its quest to increase its authorized share count by 25 million.

The AMC Analyst: Analyst Alicia Reese maintained a Neutral rating on AMC and increased the price target from $6.50 to $7.50.

The AMC Takeaways: Early signs of pent-up demand as the U.S. enters a post-pandemic environment bode well for the upcoming summer and holiday periods, Reese said in a Friday note. 

The theater chain has capitalized on its "meme stock" status by selling shares at a premium and in the process raising significant capital, the analyst said. 

AMC can use the cash infusion to more rapidly reduce its debt and return to its prior growth strategy of upgrading its European circuit and expanding screens in the Middle East, she said. 

The company is also likely to take part in the bidding process for newly available domestic theatre assets, Reese said.

Related Link: AMC Analyst: Valuation Concerns Override Expected Fundamental Improvement

A stock price target as high as $10 is justifiable should AMC use its cash balance to meaningfully reduce its debt and create earnings growth opportunities, the analyst said. 

Yet the current price is out of touch with the company's fundamentals, she said. 

Since the fourth quarter of 2018, AMC has increased its debt balance by over $700 million while also expanding its share count by nearly five times, Reese said. 

The significant volatility in AMC shares will likely continue, driven by trading momentum unrelated to the company's fundamentals, the analyst said.

"As such, we do not recommend buying shares of AMC here." 

AMC Price Action: AMC shares were trading 3.04% higher at $52.88 at last check Friday. 

Related Link: AMC Raises $230.5M Through Private Placement To Hedge Fund Mudrick: What Investors Need To Know

Photo courtesy of AMC.