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AMC Entertainment (AMC) Has Fallen 54% in Last One Year, Underperforms Market

If you are looking for the best ideas for your portfolio you may want to consider some of Mittleman Brothers top stock picks. Mittleman Brothers, an investment management firm, is bullish on AMC Entertainment Holdings Inc. (NYSE:AMC) stock. In its Q2 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on AMC Entertainment Holdings Inc. (NYSE:AMC) stock. AMC Entertainment Holdings Inc. (NYSE:AMC) is a movie theater chain.

In August 2019, Mittleman Brothers had released its Q2 2019 investor letter. AMC Entertainment Holdings Inc. (NYSE:AMC) stock has posted a return of -53.9% in the trailing one year period, underperforming the S&P 500 Index which returned 13.4% in the same period. This suggests that the investment firm was wrong in its decision. On a year-to-date basis, AMC Entertainment Holdings Inc. (NYSE:AMC) stock has fallen by 34.9%.

In Q2 2019 investor letter, Mittleman Brothers said the Mittleman Global Value Equity Fund – Class P posted a return of -4.6% in the second quarter of 2019, underperforming the S&P 500 Index which returned 4.30% in the same period. Let’s take a look at comments made by Mittleman Brothers about AMC Entertainment Holdings Inc. (NYSE:AMC) stock in the Q2 2019 investor letter.

“AMC’s share price fell from $14.85 to $9.33, for a return of -35.8% (dividends included). AMC is the largest movie theatre company in the world. It has been savaged by short-sellers who seize upon every downdraft at the box office to question the viability of the business. Yet total gross box office receipts were a record in 4 of the past 6 years, and in 6 of the past 10 years, even given that Netflix and Amazon Prime grew significantly over that period. This is not a dying business. Patrons go to the theater when the content is there, and still like to go to the theatre when the content is not amazing.

A similar scenario occurred in Carmike Cinemas (which was bought out by AMC). Its price fell from $19 in 2010 to $5 in 2011 amidst aggressive short selling and concerns about margins and profitability. Record box office results followed in 4 of the next 5 years and Carmike was bought out (by AMC) for >$33/share in 2016. Short sellers in AMC may face similar disappointment in the near term.

AMC’s stock has also been pressured by the market’s misunderstanding of a new lease accounting standard, ASC 842, that (cosmetically) results in inflated valuation metrics and overstated leverage ratios.

AMC’s subscription program (A-List) has been a big success. It has attracted over 860,000 paid subscribers in just 12 months (the company forecast 500,000 subscribers in year 1 of the program). In addition, AMC increased prices by 20% in higher cost urban areas with no resistance. A-List is also providing a boon to concessions (food and beverage) sales, which have a c. 85% gross margin. Attendance is also positively impacted; most A-list members bring a friend or family member with them to the movies who (if not a subscriber) pay the full- ticket price.

At AMC’s Q2 2019 closing price of $9.33, the stock has an 8.6% dividend yield and trades at 3x FCF of $300M. MIM sees fair value at $26, which is 10x EBITDA (reduced by ASC 842) and 12x FCF.”

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In Q1 2020, the number of bullish hedge fund positions on AMC Entertainment Holdings Inc. (NYSE:AMC) stock decreased by about 26% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with AMC Entertainment’s growth potential. Our calculations showed that AMC Entertainment Holdings Inc. (NYSE:AMC) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.