AMC Stock Could Be Worth $80 On Its Own Merits
Free cash flow from 2019 shows that AMC has legitimate value for investors
41m ago · By Mark R. Hake, CFA
Everyone thinks AMC Entertainment (NYSE:AMC) stock has moved up too far too fast. Most analysts think it is overvalued. But I am here to show you how it might not be as expensive as it seems. In fact, my model shows that it could be worth, under certain circumstances, up to $79.72 per share. I will go through the numbers in a simple model you can keep in your head as you trade the stock.
Image of the entrance of an AMC Entertainment (AMC) branded theater. undervalued stocks
Source: Helen89 / Shutterstock.com
By the way, this does not mean that I believe AMC stock won’t fall. In fact, I think there could be an opportunity to buy it below $45 and still make money in the future.
And just so you know, I have been consistently positive on the stock recently. In mid-April, I wrote about AMC stock. I put forward a simple cash flow model showing that at $9.66 AMC stock was worth considerably more. My target price was in the mid-teens, but my model showed that it could be worth up to $24 per share. I will use parts of that model in this article, so you might like to review it.
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Listening To Management About Cash Flow
The most important thing to do to value AMC stock is read the transcript of the Q1 earnings conference call that occurred on May 6. Pay particular attention to what management said about when the company will reach cash flow profitability.
At one point Meghan Durkin, of Credit Suisse, asked the company directly, “Are you still expecting to crossover and turn cash flow positive in 4Q 2021?”
She directed the question to CFO Sean Goodman, but Adam Aaron jumped in and answered a different question first, and then the CFO took up the cash flow positive timing issue. At first, he said that the revenue of the industry will be $5 billion in the U.S. Then he said this about the timing of turning cash flow positive:
“… our Q2 cash flow will be pretty similar to Q1. Q — the second half of the year overall will be significantly better than the first half of the year, but you’re going to see Q3 is going to be better than Q2, quite a lot better than Q2 and Q4 is going to be better than Q3, but exactly whether or not we will be breaking Q4 really does depend on how the final film slate ends up at the end of the day here.”
That is kind of a non-answer. But it seems to lead to a conclusion that the company will be close to, if not at, cash flow positive. That is important since it means that the company won’t feel as much pressure to raise cash and dilute shareholders after Q4.
This also implies that the company could end up having enough cash to survive until then. For example, the company announced on June 3 that it had just raised another $587.4 million in an equity raise at $50.85. |
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