AMC CEO Adam Aron has become a hero to retail investors amid the meme stock era, but one analyst argues that a new offering of AMC Preferred Equity (APE) shares is disingenuous and ultimately bad for investors.
“You know, Adam does a great job of spinning reality, and he’s sort of found followers who don’t really understand what they’re investing in,” noted tech analyst Rich Greenfield, who has one-penny price target on AMC shares, told Yahoo Finance Live (video above) following an earlier interview with Aron. “I think that’s really the scary part, because what these new APE shares essentially allow them to do is to dramatically dilute shareholders on a recurring basis.”
AMC stock fell as much as 12 percent intraday on Friday after the preferred equity issuance announcement before recovering to gain 19 percent by day’s end and continuing its run on Monday.
Aron maintained that the issuance gives the company increased financial flexibility as the theater chain rebounds from the COVID-19 pandemic.
“Just six months ago, people were hollering to the heavens that streaming as the future of the world,” Aron told Yahoo Finance Live. “Those people weren’t expecting ‘Top Gun: Maverick’ to do $1.3 billion of ticket sales in movie theaters. Theaters have a bright futures because people want to go out to theaters.”
Greenfield argued that the movie theater business has fundamentally changed because of streaming, especially given that the theatrical window — the period of exclusivity for movies in theaters — continues to shorten.
“Movies that are being released in theaters are coming to streaming services far sooner,” the LightShed analyst explained. “There’s a tremendous amount of easy-access content on streaming services. I think there will always be a reason to see a huge movie in a movie theater. But the bar to get you to leave your home and go to a theater is higher than it’s ever been and going higher and higher.”
Greenfield doesn’t think the movie-theater business is going away but does think AMC's valuation is far too high. AMC trades at 3.4 times sales and has no price/earnings ratio because it’s posting losses. Cinemark, its closest competitor, trades at 0.9 times sales.
“There’s a huge disconnect between reality and where AMC is trading today,” Greenfield said.
AMC’s stock has more than doubled from its low this year but remains far below the $62.55 record closing high from June 2021.