Hey Guys, I saw that there were come redditors that was wondering if AMC is really a buy at those “discounted” prices or no. AMC will have its earnings for 8th November 2022, After Hours.
Here i will do some math based on 2021 balance sheets and trends, with todays macro data.
TL:DR
- Negative value
- High Risk Company
- Speculative play
- Not advised for long period investment
Table of Contents
- Assumptions
- Data
- Risk Analysis
- Ratios
- Evaluation Methods
- Final Comment
Assumptions
- AMC will not get enough financing to cover its interest expense for the next years
- Current Market Trend will not change drastically and keep its current trend
- Slowdown of the economy
Data
| Data | Number | Source |
|---|---|---|
| Levered Beta | 1.9 | Yahoo Finance |
| Unlevered Beta | 0.46 | Computing |
| Market Expected Return | 9.4% | Motley's Fools, 50y average, 1972-2021 |
| US Interest Rate | 4% | Trading Economics, end year forecast rate 31/10/2022 |
| Risk Free Rate | 4.054% | Yahoo Finance, 10y US Bonds |
| Risk Premium | 5.19% | Computing |
| Corp Tax | 0.80% | Computing, Tax provision / Income before taxes |
| CAPM | 6.49% | Computing, using unlevered beta |
| WACC | 28.58% | Computing, taking in count credit rating |
| RRR | 14.21 | Computing |
| AAA Bond Yield | 5.31% | Moody's Seasoned Aaa Corporate Bond Yield 31/10/2022 |
| EPS | -2.05 | Yahoo Finance |
| Average US GDP Growth | 3.18% | TradingEconomics 1947 – 2022 |
| Outstanding shares | 516,820,600 | Excel Stock Data 31/10/2022 |
| Next Years Analyst growth estimate | 70.40% | Yahoo finance |
| Next 5 Years Analysts growth estimate | -217.00% | Yahoo finance |
| Growth Rate by earning retention | -58.98% | Computing |
| Growth Rate by ROA & Retention | -10.50% | Computing |
| ROA | -11.73% | Computing |
| Earning Retention Rate | 100% | Balance sheet |
| P/E | 0 | Yahoo Finance |
| PEG | 0 | Computing |
| Market P/E | 20.29 | Mutlpl.com |
Risk Analysis
Taking in count the stock's price movement from 1914 to 2022, we have the following data:
| Expected Return | 5.12% |
|---|---|
| Variance | 33.42% |
| Standard Deviation | 57.81% |
Ratios
Profitability
| Indicator | 2021 | 2020 | 2019 |
|---|---|---|---|
| Gross Profit Margin | -41.87% | -185.41% | 6.75% |
| ROA | -11.73% | -44.66% | -11.73% |
Efficiency
| Indicator | 2021 | 2020 | 2019 |
|---|---|---|---|
| Accounts Receivable Turnover | 19 | 54 | 18 |
| Accounts Payable Turnover | 217 | 428 | 106 |
| Asset Turnover Ratio | 0.24 | 0.10 | 0.47 |
| Inventory Turnover | 15 | 19 | 7 |
| Days sales in Inventory ratio | 23.82 | 19.32 | 52.74 |
Management Effectiveness
| Indicator | 2021 | 2020 | 2019 |
|---|---|---|---|
| ROE | -70.96% | -160.57% | -12.28% |
| ROIC | -3.92% | -10.94% | 7.63% |
Financial
| Indicator | 2021 | 2020 | 2019 |
|---|---|---|---|
| Cash Ratio | 89.07% | 19.53% | 13.71% |
| Working Capital | 0.59 | 0.31 | 0.35 |
| Acid Test | 0.99 | 0.26 | 0.27 |
| Debt Ratio | 93.67% | 104.97% | 71.34% |
| Debt to Equity | 566.47% | 377.40% | 803.56% |
Value
| Indicator | 2021 | 2020 | 2019 |
|---|---|---|---|
| Price to Book Ratio | -1.75 | 1.10 | 2.58 |
| Income Quality | 0.48 | 0.25 | 3.88 |
Evaluation Methods
In this evaluation, i used the following methods:
- Adjusted Graham Formula
- FCF Evaluation Method
- Discounted Unleveread Free Cash Flow
The Final Price is the average price extrapolated from those three ways.
Note: Dividend Discount Model and Total Payout Model are not considered due to the fact that they do not pay dividends.
Adjusted Graham Formula
| Data | Number |
|---|---|
| EPS | -2.05 |
| P/E | 7 |
| Growth Rate (earnings based) | -58.98 |
| 1g | 1 |
| Corporate Bond | 4.4 |
| AAA Bond Yield | 5.13 |
| Intrinsic Value | $0 |
Free Cash Flow Evaluation Method
| Data | Number |
|---|---|
| FCF | $-622,300,000 |
| Discount Rate (WACC) | 28.54% |
| Growth Rate (earning based) | -58.98% |
| Per share Value | $16.33 |
Discounted Unleveread Free Cash Flow (2022 to 2026)
| Data | |
|---|---|
| Discount Rate (WACC) | 28.54% |
| Growth rate (earning based) | -58.98% |
| Average US GDP Growth | 3.18% |
| Shares outstanding | 516,820,600 |
| Current Value | -$31.98 |
Final Comment
AMC is a heavily indebted company; the leverage is unsustainable, and the company is struggling to have positive net income. Its Cash Burning Rate is at 2.56, meaning its spending 2.5 times more its cash availability, giving the company a life expectancy of 30 moths with its current cash & cash equivalents. It will need to cash in accounts receivables to extend more its life expectancy.
Income quality dropped drastically since 2018, it means that total earnings do not correspond to the actual cash intake from its operations.
Cash Ration indicate that the company will struggle to pay its current liabilities with its current cash.
Without a drastic change in its fundamentals, the company is in high risk.
It is advisable to keep an eye on the Company operations and Management Action and evaluate possible adjustments for the final pricing without any changes in trends, the company is destined to die.
What do you think? Any ideas? Suggestions? Feel free to comment! 😀
This is not financial advice
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