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AMC Entertainment Holdings (NYSE: AMC) had a volatile few years. The pandemic has forced it to temporarily close its theaters, and since that’s how the company generates almost all of its revenue, the closures have been devastating.

Luckily for shareholders, the company has reopened its cinemas, once again showing blockbuster movies on the big screen. However, the actions management was forced to take during the early stages of the pandemic have burdened the company with costly debt that will be difficult to repay.

Let’s look at the green and red flags in more detail below.

Image source: Getty Images.

Green flag: blockbusters flourish on the big screen

When the pandemic forced AMC to close its theaters, studios responded by pushing back the release dates of potential blockbuster titles. In some cases, studios released the movies directly to streaming services, foregoing theaters entirely. This has caused fear among AMC shareholders that the studios will maintain this strategy even after the pandemic. The fears mostly subsided after several films delivered stellar box office performances.

Spider-Man: No Coming Home earned $1.9 billion on the big screen. Doctor Strange in the Multiverse of Madness approaching $900 million as The Batman took in $770 million. Of course, studios would like to spruce up their streaming services by releasing new movies directly to the platforms. But it wouldn’t be prudent for them to pass up hundreds of millions, if not billions, skipping the big screen entirely.

A success of this magnitude boosted AMC’s revenue to $786 million in its most recent quarter, which ended March 31. That was more than five times the $148 million it earned in the same quarter the year before. While the rebound is a green flag, of course, AMC’s revenue is still well below pre-pandemic levels.

AMC Revenue Table (Quarterly)

AMC turnover (quarterly). Data by YCharts.

Red flag: AMC has a worrying debt

The management did a great job when its cinemas were forced to close. She sold stock, took on debt, and negotiated rent payment extensions to ensure the company’s survival. As necessary as they may have been, these measures now burden the company with a heavy debt load. As of March 31, AMC had $5.5 billion in debt on the balance sheet. That was nearly $100 million more than the same time last year.

AMC Operating Revenue Table (Annual)

AMC operating profit (annual). Data by YCharts.

During the quarter ended March, AMC paid $82 million in interest expense. For all of 2021, he paid $459 million in interest charges. To put those numbers into context, AMC earned $748 million in revenue in the last quarter and $1.4 billion in 2021. Over the previous decade, the highest operating profit earned by AMC was in 2018 to $310 million; the second highest was $267 million. Comparing annual interest expense with previous peak operating profit levels shows how difficult it will be for AMC to service the $5.5 billion debt.

Overall, the red flag is far more problematic for AMC’s stock than the green flag is positive. Even though they are rebounding, incomes are still significantly below pre-pandemic levels. Meanwhile, the company continues to lose money to bottom line and interest charges are bleeding money from its balance sheet.

AMC lost $295 million in cash from operations in the first quarter. It had $1.16 billion in cash and cash equivalents as of March 31, up from $1.6 billion as of December 31. At this rate, it may not take long for society to return to crisis mode.

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Parkev Tatevosian has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.