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• AMC announced a debt-for-equity deal valuing the stock at $7.47.
• The deal dilutes existing shareholders and signals higher risks.
• While sales growth is anticipated, the future for AMC is challenging.

AMC Entertainment Holdings, Inc. (NYSE: AMC) announced the issuance of 3.3 million shares. According to the latest filing, the shares were in exchange for $25 million second lien notes due in 2026. The company also launched a deal sweetener, announcing a new line of AMC-branded chocolate candies. The information is undoubtedly quite overwhelming for the untrained eye. That is why we offer an incisive analysis of what that deal means for the investors.

Issuance of shares for second lien debt is concerning for two reasons. First, the deal results in the dilution of existing shareholders. Secondly, the deal signals a challenging economic outlook. Consequently, the intrinsic value of the shares was placed at only $7.47. AMC recognized the two challenges and announced the new line of candies.

The debt-for-equity deal comes only a few months after AMC’s stock split. The share split took place at the end of August this year. The quick succession of the events signals a company that is desperate to raise capital from the markets. The fact that AMC resorted to high-cost second-lien debt affirms the capital challenges it faces.

The market woes for AMC are understood better by looking at the price-to-sales ratio. At just 0.4x, the price-to-sales ratio makes an interesting case. That is particularly true when AMC is compared to the 1.2x P/S industry level. 

The low price-to-sales could imply that AMC is undervalued because sales have been growing post-pandemic. However, we know that the market already factored sales growth in the pricing, yet the price kept falling. You should anticipate more market jitters after the debt-for-equity announcement.
 

AMC share bleeds after debt-for-equity announcement

(Click on image to enlarge)

Source – TradingView

Stock price data shows that the short-term moving averages continued to trend below the longer-term averages. The share price also declined by 8.46% following the latest stock market news. At least, the decline confirms our fears, which we detail in the stock analysis above.

The price of $6.17 is lower than the implied valuation of $7.47. When we factor in the supply-side volumes, it is clear that AMC has challenges on and off the market.
 

Summary

Investors must analyze all the mixed information from AMC before diving into the deep end. The implied intrinsic value of $7.47 does not inspire any confidence among the investors. The gourmet candies announcement is just a deal sweetener to calm the markets.

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