AMC Entertainment (NYSE:AMC) reported its first-quarter results on May 6 after the markets closed. As expected, the results were dreadful. However, AMC stock is up more than 5%.
Its pre-market gains aren’t the only silver lining with its latest quarterly results if you own AMC. Thanks to almost no business in the first quarter, next year’s Q1 2022 results will look tremendous by comparison.
Hey, you’ve got to celebrate the little victories until the big victories come along. And I’m not even a fan of the company.
So, let’s take a look at what investors can look forward to a year from now.
AMC Stock and Valuation
The theater chain delivered Q1 2021 sales of $148.3 million, 84.2% less than Q1 2020. Annualize this number and we’re talking about $593 million in sales and a theoretical price-to-sales ratio of 6.8.
That doesn’t seem too bad until you look at its P/S over the past five years and see that its highest multiple was 1.1x in 2016. Based on this historical high point, AMC stock should have a market capitalization of just $652 million, not $4.2 billion.
Before you go all Reddit crazy on me, I realize the odds of it only doing $593 million in sales in 2021 are slim to none. Even in 2020, a year in which 10 months of its fiscal year were in a pandemic, it still managed sales of $1.24 billion.
I was doing a little spitballing. The eight analysts who cover AMC estimate it will generate $2.44 billion in 2021 and $4.76 billion in 2022. This means it has to do $2.29 billion over the final three quarters of the year. Deferring once more to the analysts, they estimate Q2 2021 of $361.4 million and $809 million in Q3 2021. That leaves $1.12 billion for it to meet the 2021 annual estimate for sales.
Can it do it?
Well, 2019 was its best year on record with $5.47 billion in revenue. In Q1 2019, it did $1.2 billion, so yes, it can meet that high bar. That doesn’t mean it will.
As the Q1 2021 press release showed, the company had 585 theaters open (99%) in the U.S. during the quarter. That’s up to 589 theaters as of April 30. Those theaters were operating anywhere between 15% and 60% of capacity. Internationally, only 27% of its theaters were open (97 out of 357). That was up to 110 (31%) as of April 30. I’ll assume the capacity limits are similar for all theaters, domestic and international.
The thing is, AMC generated $1.2 billion in revenue in Q1 2019 from 1,001 theaters. Of those, 636 were domestic and 365 were outside the U.S. All remained open during the quarter at 100% capacity.
Given the current capacity restraints, along with the fact, it has approximately 51 fewer theaters than it did in Q1 2019 — 950 versus 1001 — I don’t see it meeting the analysts’ expectations.
That alone could knock 2-3 dollars off its stock price.
Looking Ahead to 2022
In Q1 2019, the year got off to a slow start. The year before, it had revenue of $1.38 billion, 14% higher. Let’s assume that Q1 2022 equals the revenues from Q1 2019.
Working backward, it would need $1.38 billion in sales. In Q1 2018, it had an attendance of 90.9 million patrons, with each generating $15.22 between tickets and concessions. In Q1 2021, it generated $21.82 per patron (revenue of $148.3 million divided by 6.8 million patrons).
If it generates $21.82 per patron in Q1 2022, to get to $1.38 billion, it would need an attendance of 63.2 million. Considering its attendance in 2019 and 2018 were both well above that figure, it’s certainly possible.
The more difficult task is maintaining the $21.82 revenue per patron. It’s never come close to that. And while I do think there is a pent-up desire to spend, by Q1 2022, it might already have been spent in countless ways post-openings.
So, I think it’s fair to say that the people who did get out to a movie in the first quarter spent like maniacs. It’s a silver lining for sure.
Is it enough to recommend AMC stock? Not even close.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.