AMC Entertainment Holdings, Inc. (NYSE:AMC) shares are down more than -63.74% this year and recently increased 2.52% or $0.3 to settle at $12.20. Regal Entertainment Group (NYSE:RGC), on the other hand, is down -24.03% year to date as of 11/06/2017. It currently trades at $15.65 and has returned -2.86% during the past week.
AMC Entertainment Holdings, Inc. (NYSE:AMC) and Regal Entertainment Group (NYSE:RGC) are the two most active stocks in the Movie Production, Theaters industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect AMC to grow earnings at a -10.52% annual rate over the next 5 years. Comparatively, RGC is expected to grow at a 4.88% annual rate. All else equal, RGC’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 20.35% for Regal Entertainment Group (RGC). AMC’s ROI is 2.60% while RGC has a ROI of 15.30%. The interpretation is that RGC’s business generates a higher return on investment than AMC’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. AMC’s free cash flow (“FCF”) per share for the trailing twelve months was -1.82. Comparatively, RGC’s free cash flow per share was -. On a percent-of-sales basis, AMC’s free cash flow was -7.36% while RGC converted 0% of its revenues into cash flow. This means that, for a given level of sales, RGC is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. AMC has a current ratio of 0.50 compared to 0.90 for RGC. This means that RGC can more easily cover its most immediate liabilities over the next twelve months.
AMC trades at a forward P/E of 27.54, a P/B of 0.65, and a P/S of 0.41, compared to a forward P/E of 14.74, and a P/S of 0.81 for RGC. AMC is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. AMC is currently priced at a -45.61% to its one-year price target of 22.43. Comparatively, RGC is -17.54% relative to its price target of 18.98. This suggests that AMC is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.30 for AMC and 2.40 for RGC, which implies that analysts are more bullish on the outlook for RGC.
Risk and Volatility
Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. AMC has a beta of 1.41 and RGC’s beta is 1.05. RGC’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. AMC has a short ratio of 6.34 compared to a short interest of 7.67 for RGC. This implies that the market is currently less bearish on the outlook for AMC.
Regal Entertainment Group (NYSE:RGC) beats AMC Entertainment Holdings, Inc. (NYSE:AMC) on a total of 10 of the 14 factors compared between the two stocks. RGC , is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, RGC is the cheaper of the two stocks on an earnings and book value, Finally, EA has better sentiment signals based on short interest.