Breakingviews: AMC’s valuation is a date with derangement

Anyone who saw 2020 summer sci-fi blockbuster “Tenet” knows that a fantastical narrative can still attract a modest crowd. The same principle applies to movie chain AMC Entertainment. Its shares have popped in recent weeks after its adoption as a so-called meme stock by speculative traders. At one point Thursday, AMC had a market capitalization of over $37 billion, roughly 100 times its value at the end of 2020.

Like the protagonists of “Tenet,” an investor can try to work backwards to see what that means. Including debt, AMC has an enterprise multiple of just over 8 times its estimated sales for 2022, according to Refinitiv. Competitor Cinemark’s similar valuation is around 2 times its equivalent estimated sales. Assuming AMC should trade like its peer, the movie theater chain would have to quadruple its revenue from 2019’s pre-pandemic level – adding an extra $18 billion – to justify its current share price.

That calls for a whole lot of Milk Duds and puppy love. The price of two tickets for an evening showing of “Cruella,” plus two servings of candy and a large Coke to share, is around $50, based on a cursory perusal of the AMC in Cherry Hill, New Jersey. At that rate, AMC needs to usher in 360 million couples on date night to live up to investors’ new expectations. That’s akin to a roughly two-thirds increase in the entire cinema-going audience of the United States and Canada compared to 2019, based on data from the National Association of Theater Owners.

In reality, AMC would need to do even more than that. Having issued $1.2 billion in new stock in recent weeks, the cinema chain is now luring investors by offering them free popcorn. If many of them take up the offer, date night will get even cheaper, AMC’s profit margin will get a little bit lower – and the valuation of its shares will look even more deranged.

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