Is AMC Stock a Trick or a Treat?

It's Halloween, and that means every knock on the door is a surprise. Will you get a full-size chocolate bar or a handful of unwrapped candy corn? It may be the trick-or-treaters with the lighthearted threat of a trick if they don't get a treat, but those standing at the other side of the door -- digging into their bowls of candy -- also pack some power.

AMC Entertainment (NYSE: AMC) has been a battleground stock for years, since before it got swept up in the 2021 meme stock wave. This won't be a history lesson. Let's size up today's knock on the door. Is AMC a trick or a treat for investors? Let's take a look at both sides before I offer my take on the sticky situation.

Image source: Getty Images.

It's a trick

AMC stock has nearly doubled this year, but it's also down 99% -- more than 99%, actually -- over the past five years. Like the Matrix sequels, AMC hasn't been able to keep a good thing going.

Management is questionable. The pandemic proved brutal for all exhibitors, but some of AMC's rivals have been profitable for the past couple of years. Two of them even pay quarterly dividends now. AMC hasn't posted an annual profit since 2018.

Festivus may be nearly two months away, but the airing of grievances with management can be long. CEO Adam Aron embraced the meme stock frenzy to the detriment of its fiscal responsibility to shareholders. Distractions include NFTs, crypto, unrelated investments, and even a short-lived AMC credit card that was discontinued last summer.

The biggest knock on management is how AMC diluted its shareholders through stock offerings, culminating in a brutal preferred equity that exploded its ultimate share count. AMC also bloated its balance sheet with debt, to the point where today's $2.7 billion market cap is overshadowed by its $9.7 billion enterprise value.

There's also the broad bearish narrative for the future of your local multiplex. Streaming at home is convenient, and now profitable for movie studios that launched the digital platforms a few years ago. Ticket sales peaked in 2002. Two dozen years later, the streaming revolution could be finishing the job.

It's a treat

Let's start with the good news for exhibitors in general. U.S. ticket sales will top $10 billion this year for the first time since 2019. Globally, this will be only the second year that more than five movies deliver at least $1 billion in box office receipts apiece.

Movie studios that were pushing digital delivery early in the pandemic are now embracing theatrical release windows as folks come back. More importantly for multiplex operators, they are finding ways to boost revenue per capita through updated concession-stand offerings, collectibles, and premium add-ons.

AMC is killing it on that front. Ticket sales account for a little more than half of its revenue, but then it's up to theater operators to cash in on their captive audiences. AMC is keeping folks close with its AMC Stubs loyalty program and its AMC Stubs A-List movie subscription service. Engagement has never been stronger, and now it's mowing down other bearish weeds.

Analysts now see AMC closing out 2026 with three consecutive profitable quarters, posting an adjusted annual profit for the first time since 2018. They see margins widening and profitability outpacing revenue growth in the coming years.

Content creators are on board. Audiences across various age groups are returning to the theater experience. The days of dilution, deficits, and reverse stock splits could be over.

The Hollywood ending

After years of shaking my head, I became an AMC shareholder this summer. I remain skeptical of management, but I can be awfully forgiving when a market leader in a reemerging industry trades at a discount. Yes, AMC is at the mercy of studios to continue cranking out compelling content. This will always be the case.

Sidestep the hype that burned investors between 2022 and 2025, and you now have a business that is ascending and a management team that is humbled. It can't blow it now, and if Aron and his team overshoot the runway again, change will inevitably bring in a team capable of delivering sustainable shareholder value.

The lights are dimming -- just as the prospects are getting brighter -- because the feature presentation is about to start. Enjoy the show.

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.