The vaccination rollout in the U.S. gained pace over the last few months making recovery stocks a strong bet for contrarian and value investors. Companies in the movie theater segment were decimated amid the COVID-19 pandemic as economic lockdowns were imposed and entertainment avenues shut down.
However, in April 2021, ticket sales for stateside exhibitors were close to $190 million, which was the best month since March 2020. Alternatively, the bears might argue that ticket sales in April 2018 and 2019 topped $1 billion, which means the recovery in entertainment stocks might be subdued and painful.
Keeping this in mind, let’s take a look at two stocks in the movie industry- AMC Entertainment (AMC) and IMAX (IMAX) to analyze which is a better buy right now.
AMC Entertainment stock is up 600% year to date
One of the top performers in 2021, AMC Entertainment stock is up close to 600% year to date. AMC is one of the stocks that benefited from a Redditt-fueled rally in early 2021. Its shares rose from $2 at the start of 2021 to a multi-year high of $20.36 by the end of January.
Retail investors in Redditt chat rooms bought shares in stocks with call options and high short interest ratios. These companies included AMC, BlackBerry, and GameStop. AMC stock is currently trading at $14.70, valuing it at a market cap of $6.62 billion. However, let’s see if AMC is fundamentally strong or remains a high-risk bet for retail investors.
Shares of AMC have underperformed the broader markets since its IPO in late 2013. After AMC went public, it has lost 23% in market value to date. Comparatively, the S&P 500 is up 171% in this period. Investors are worried that OTT platforms and the shift to online streaming will impact AMC shares in the upcoming decade. According to a report from The-Numbers.com, ticket sales in the U.S.in 2019 were 1.22 billion, down 22% from record highs of 1.57 billion in 2002. The ongoing pandemic might have easily accelerated the shift towards consuming online content.
Further, in Q1, AMC reported a negative cash flow of $325 million. While the company ended the quarter with $1 billion in liquidity, it expected to post a loss of $1.48 billion in 2021 and a loss of $400 million in 2022, which means it will have to raise debt or equity capital in the near future.
In 2019, AMC reported sales of $5.47 billion. Analysts expect sales to rise by 94.5% to $2.42 billion in 2021 and by 98.2% to $4.79 billion in 2022. We can see AMC’s sales are unlikely to reach pre-COVID-19 levels anytime soon.
IMAX has better financials
While IMAX has also been hurt due to COVID-19, it has rebounded 21% year to date and is up 73% in the last year. AMC ended Q1 with $11 billion in debt and just $813 million in cash. Comparatively, IMAX has a cash balance of $268 million and a debt of just $289 million at the end of Q1.
Analysts also expect the company to increase sales by 66.6% to $228.22 million in 2021 and by 55.8% to $355 million in 2022. Comparatively, its earnings are forecast to improve from a loss per share of $1.89 in 2020 to earnings of $0.92 in 2022.
While movie chains might reopen in the U.S. next month, several countries such as China, South Korea, and Russia have allowed limited seating capacity in theaters. IMAX’s 800 overseas outlets in these countries, including the Middle East, collected $14 million in ticket sales due to the latest installment of the Fast and the Furious franchise.
During the earnings call, IMAX CEO Rich Gelfond claimed, “In China, the box office rebound and the robust pickup in installations drove revenue recovery to pre-pandemic level of $26 million, in line with our first quarter of 2019, and that's without Hollywood films.”
The verdict
It seems quite evident that IMAX is a better choice compared to AMC Entertainment due to lower debt levels and improving financials. IMAX is also forecast to end 2022 with an adjusted profit, while AMC might post losses well into 2024.
Analysts tracking the stocks are also bullish on IMAX. Compared to consensus estimates, IMAX stock is trading at a discount of 17% while AMC stock is trading at a premium of 68%.
AMCX shares were trading at $50.85 per share on Tuesday afternoon, up $0.43 (+0.85%). Year-to-date, AMCX has gained 42.16%, versus a 12.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.
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