AMC Stock Is Up 73% This Year. Why Are You Still Laughing?

If your love affair with the local multiplex is rekindling again, you're not alone. Domestic box office receipts are currently 20% higher than they were at this point last year. Globally, there will be more theatrical releases this year that top $1 billion in ticket sales than in just one other year in cinematic history.

This rosy backdrop has delivered 73% year-to-date gains for AMC Entertainment (NYSE: AMC) shareholders. But zoom out, and the story becomes more horror than rom-com. It was five years ago this month that AMC rolled out its ad featuring Nicole Kidman singing the praises of moviegoing while walking into an empty theater.

"Somehow, heartbreak feels good in a place like this," she said.

AMC stock has still fallen by more than 99% since the Kidman spot's debut. However, with the meme-manned shares finally in a position to live up to the hype, it could be time for serious investors to stop laughing at AMC -- and laughing all the way to the bank.

Image source: Getty Images.

Lights! Camera! Traction!

AMC can't hide from its checkered past. The bullish hope is that the company has learned from it. CEO Adam Aron has not been a good steward for the exhibitor's shareholders. The distractions and dilution have been brutal. The AMC Preferred Equity units issued in 2022 were a disaster that needlessly bloated share count. The arrogance in believing that meme stock investors would be enough to support an AMC-branded credit card, NFT initiatives, and packaged retail popcorn failed on the first two fronts, with the jury still out on the third.

Then there's the dilution, but I'm going to stop there. This is the kind of trap that AMC bears fall into when sizing up one of the market's biggest losers over the past five years.

I like AMC here. It comes with a lot of baggage and a problematic management history, but this is a blessing in disguise. AMC is at the point where nonsense will no longer be tolerated. Its smaller rivals are now profitable on a trailing basis. Analysts see AMC turning profitable on an adjusted basis by 2028. It can't afford to fail. The stock's recent ascent makes it ripe for another dilutive secondary offering, but the company knows that patience has a short wick. With AMC already improving its operations, a move done more for greed than need will be snuffed out.

Hoping for a Hollywood ending

A rising tide lifts all corner multiplexes, but I am aware of the stronger case for buying smaller, profitable regional players, including Cinemark (NYSE: CNK) and Marcus (NYSE: MCS). They cracked the code, just as AMC was cracking.

This is the bullish thesis for AMC that no one is hearing over the laughter of the naysayers. AMC is already mounting a comeback. Despite being the largest player in an industry that should have scalability advantages, it's trading at a lower trailing multiple to its enterprise value, based on earnings before interest, taxes, depreciation, and amortization (EBITDA), than its smaller peers. You can get the top dog at a discount, largely because it's seen widely as more dog than top.

You've seen this movie before. You know how it ends. AMC made a lot of smart moves that fell silent during the downticks before this year's bounce. The push for reserved seating encourages advance purchases to lock in prime seats. The company has made its AMC Stubs loyalty club sticky enough to attract more than 40 million members. Its high-margin concessions revenue continues to outpace the industry as it embraces release-specific collectibles and continually improves its food and beverage offerings.

Even the elements outside its control are heating up. Movie studios and even streaming services now realize that there is serious money to be made during the theatrical release window. The same studios and platforms that couldn't push their content into secondary revenue streams fast enough are being paid to be patient. This is a great time to warm up to the country's multiplex operators, but my money is on the market leader that serious investors continue to dismiss.

Rick Munarriz has positions in AMC Entertainment. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.