AMC’s valuation is a date with derangement

NEW YORK (Reuters Breakingviews) - 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.

Fresh popcorn is pictured at a AMC theatre on reopening day during the outbreak of the coronavirus disease (COVID-19), in Burbank, California, U.S., March 15, 2021. REUTERS/Mario Anzuoni

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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- AMC Entertainment launched its second share issue in three days on June 3, while warning investors that after a week of stellar gains they risked losing their shirts if they backed the company at current prices.

- The theater chain sold 11.6 million shares at an average price of approximately $50.85 per share and raised more than $587 million, leading to a total of $1.2 billion raised in the company’s second financial quarter.

- Shares of AMC were up 4% to $65.16 as of 2:10 p.m. ET on June 3. Year to date, the stock is up more than 3,000%.

- For previous columns by the authors, Reuters customers can click on [SILVA/] and [SABA/]


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