Regal Entertainment Group (NYSE:RGC) shares are down more than -23.93% this year and recently increased 3.71% or $0.56 to settle at $15.67. AMC Entertainment Holdings, Inc. (NYSE:AMC), on the other hand, is down -65.38% year to date as of 11/13/2017. It currently trades at $11.65 and has returned -4.51% during the past week.
Regal Entertainment Group (NYSE:RGC) and AMC Entertainment Holdings, Inc. (NYSE:AMC) are the two most active stocks in the Movie Production, Theaters industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect RGC to grow earnings at a 4.88% annual rate over the next 5 years. Comparatively, AMC is expected to grow at a -11.77% annual rate. All else equal, RGC’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. Regal Entertainment Group (RGC) has an EBITDA margin of 21.97%. This suggests that RGC underlying business is more profitable RGC’s ROI is 15.20% while AMC has a ROI of 2.60%. 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. RGC’s free cash flow (“FCF”) per share for the trailing twelve months was -0.37. Comparatively, AMC’s free cash flow per share was -0.43. On a percent-of-sales basis, RGC’s free cash flow was -1.82% while AMC converted -1.74% of its revenues into cash flow. This means that, for a given level of sales, AMC 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. RGC has a current ratio of 0.80 compared to 0.50 for AMC. This means that RGC can more easily cover its most immediate liabilities over the next twelve months.
RGC trades at a forward P/E of 14.76, and a P/S of 0.80, compared to a forward P/E of 28.69, a P/B of 0.63, and a P/S of 0.34 for AMC. 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. RGC is currently priced at a -17.44% to its one-year price target of 18.98. Comparatively, AMC is -43.67% relative to its price target of 20.68. 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 2.40 for RGC and 2.30 for AMC, which implies that analysts are more bullish on the outlook for RGC.
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. RGC has a beta of 1.06 and AMC’s beta is 1.42. RGC’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. RGC has a short ratio of 6.88 compared to a short interest of 6.23 for AMC. 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 9 of the 14 factors compared between the two stocks. RGC is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, 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, TTWO has better sentiment signals based on short interest.