Finance

A Side-by-side Analysis of AMC Entertainment (AMC) and Eros International (EROS)

AMC Entertainment Holdings, Inc. (NYSE:AMC) and Eros International Plc (NYSE:EROS) are the two most active stocks in the Movie Production, Theaters industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. AMC’s ROI is 2.60% while EROS has a ROI of 1.30%. The interpretation is that AMC’s business generates a higher return on investment than EROS’s.

Liquidity and Financial Risk



Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. AMC has a current ratio of 0.50 compared to 1.10 for EROS. This means that EROS can more easily cover its most immediate liabilities over the next twelve months. AMC’s debt-to-equity ratio is 1.99 versus a D/E of 0.34 for EROS. AMC is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

AMC trades at a forward P/E of 21.23, a P/B of 0.70, and a P/S of 0.43, compared to a forward P/E of 12.32, a P/B of 0.52, and a P/S of 1.85 for EROS. 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

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. AMC is currently priced at a -49.85% to its one-year price target of $26.42. Comparatively, EROS is -57.19% relative to its price target of $16.00. This suggests that EROS 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 1.30 for EROS, which implies that analysts are more bullish on the outlook for AMC.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. AMC has a beta of 1.49 and EROS’s beta is 0.60. EROS’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 4.37 compared to a short interest of 20.59 for EROS. This implies that the market is currently less bearish on the outlook for AMC.

Summary

Eros International Plc (NYSE:EROS) beats AMC Entertainment Holdings, Inc. (NYSE:AMC) on a total of 7 of the 11 factors compared between the two stocks. EROS generates a higher return on investment and has lower financial risk. In terms of valuation, EROS is the cheaper of the two stocks on an earnings and book value, EROS is more undervalued relative to its price target. Finally, AI has better sentiment signals based on short interest.

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