Cinemagoers are waiting anxiously for movie theaters to reopen on a full-fledged basis. However, the industry will remain stressed for at least a few years. Therefore, although AMC Entertainment (NYSE:AMC) is up 110% in the last three months, AMC stock is still a risky proposition.
Right now, shares of the company are trading over 369% above their 52-week low of $1.91. AMC was one of the original “Reddit stocks” that retail traders on the subreddit r/WallStreetBets targeted.
Apart from AMC, GameStop (NYSE:GME), Nokia (NYSE:NOK) and BlackBerry (NYSE:BB) are some other meme stocks that have been net beneficiaries of this unique phenomenon. But AMC is not sound on a fundamental basis. Movie theaters are struggling during the pandemic and the future of the industry doesn’t look good.
Instead, streaming is all the rage these days. The pandemic has only exacerbated that trend. So, with more entertainment companies going the streaming route, it’s a given that the movie theater business will keep losing steam. Because of that, it’s best to book your profits now and dump AMC stock while you still can.
Bleak Outlook for AMC Stock
Even before the pandemic, movie-theater stocks were considered a risky investment. However, now the novel coronavirus has stomped on theaters and done wonders for streaming.
For example, WarnerMedia Studios (owned by AT&T (NYSE:T)) recently announced that it will release its entire 2021 movie lineup in theaters and on HBO Max at the same time. Wonder Woman 1984 was the first movie to be given this treatment in 2020 and it became the most-watched straight-to-streaming title of the year. Hence, it’s unsurprising that the company went down this route.
The larger issue for AMC stock, though, is that this decision could lead to other entertainment companies and studios taking a similar path, focusing more on streaming than theatrical releases. That’s why, when the HBO Max decision was announced, AMC cried foul. The industry was already under fire due to the pandemic, so this announcement hit it like a ton of bricks.
On top of that, Netflix (NASDAQ:NFLX) hasn’t made things any easier, announcing that it would release 70 new original movies this year. The company spent over $15 billion on original content in 2019. At the start of last year, Variety reported that Netflix was looking to spend over $17 billion on original content in 2020.
But can you blame it? Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Disney (NYSE:DIS) are also spending billions on their streaming platforms. It’s only fair that NFLX ups the ante.
Where has that left AMC and other theater chains, though? Frankly, not in a good place.
Fun While It Lasted
You have to give credit where it’s due. Reddit users upended the markets, giving a new lease on life to several companies. AMC has taken advantage of that situation, issuing a massive amount of equity and restructuring its debt to stave off bankruptcy.
However, AMC stock will soon start trading on fundamentals. It has already cooled down substantially from its 52-week high of $20.36 per share. Reddit users notwithstanding, it looks like the sunset years are here for movie theaters.
Major summer blockbusters can delay the inevitable. But the future of entertainment is streaming. Disposable incomes will take some time to recover from the pandemic and purchasing a Netflix or Disney+ subscription is a much more attractive option than splurging at your local theater.
Right now, AMC shares have an average price target of $3 per share from four analysts tracked by Tipranks, a nearly 67% downside. There is certainly no silver lining for this name in the foreseeable future. In fact, CNBC data shows that the company has disappointed Wall Street estimates for the last five quarters in a row.
In summary, AMC stock is a perilous play at the moment. Streaming has gained immensely during the pandemic and it doesn’t look like the trend will let up this year. The conflicting price performance of it and NFLX should tell you where the industry is heading.
So, if you are looking for more of a value play, AT&T is your best bet — not AMC.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.
