A few weeks ago, I noted that Adam Aron, the CEO of movie-theater chain AMC Entertainment (NYSE:AMC), is making some unusual decisions. I’m not looking to offend AMC stock holders — but when combined with AMC’s first-quarter underperformance, Aron’s actions may not bode well for the stock.
During a recent conference call, Aron went off the rails and started quoting Winston Churchill. It was the second time in a year that the CEO publicly attempted to channel Churchill. Likening World War II to AMC’s battle for survival might not sit well with some folks.
And now, Aron’s attention is turning towards amateur traders, who are bolstering the CEO’s ego more than the bull thesis for AMC.
A Closer Look at AMC Stock
If you’re not ready to handle the volatility of “meme stocks,” then it’s probably best just to stay away from them. Or, if you must invest in them, at least keep your position sizes small.
What’s appealing about AMC stock to amateur traders is, I’m sure, its big moves. In January of this year, Reddit and Robinhood traders bid the share price up, sending it to a 52-week high of $20.36.
This was a huge gain, as the shares were trading for about $2 in early January. Unfortunately, however, some folks got in near the tail end of the rally and were promptly punished.
Chasing stocks after vertical moves isn’t a strategy that I generally recommend. AMC stock provides a harsh lesson here, as the share price plunged to $5 and change in February.
There have been other rallies since that time. Indeed, the stock rose to $14 in March, and then again to that level in May.
At the close of the markets on May 21, AMC stock settled at $12.08. I suppose it’s possible to wait until the share price retreats to $5 again, then buy in anticipation of another price spike to $14.
Alternatively, you can just grab some popcorn, take a seat and enjoy the show without owning any shares at all.
The Reality of the Situation
At this point, I need to mention something that should snap prospective investors back to reality. This, by itself, might dissuade some folks from taking a long position.
AMC stock has trailing-12-month earnings per share of -$15.59. That’s pretty awful when the stock price is more than $13.
There are also a few unsettling stats concerning the company’s first quarter:
- Loss of $567.2 million, which translates to $1.42 per share (analysts, according to FactSet, were expecting a loss of $1.34 per share)
- Quarterly sales of just $148.3 million, a vast decline compared to the $941.5 million recorded during the first quarter of 2020
- Total adjusted revenues of $147.4 million, missing the consensus estimate of $153.43 million. With that, revenues dropped 84.3% on a year-over-year basis.
- An 88.8% decline in attendance due to the Covid-19 pandemic
CEO Adam Aron as Meme Lord
Aron has even admitted that AMC was “within months or weeks of running out of cash five different times.” Clearly, the theater chain isn’t out of the woods despite the increased availability of Covid-19 vaccines.
If a stock jumps higher based on its meme-stock status, I don’t consider that to be a good thing. Evidently, Aron sees things differently.
“Just go on Twitter, just go on Reddit, just go on YouTube, read what these people write. They love AMC…” Aron recently crowed during an earnings call. Aron has even started to retweet his fans’ memes, as you can see here and here.
Moreover, the AMC CEO is spending some of his free time tracking the activity of his fans. These fans are informally known as “apes” (not a derogatory term, supposedly).
“I have started to follow Apes, about 500 so far, to get a first hand sense of what our community is thinking snd [sic] saying,” Aron recently tweeted.
AMC Stock Price Doesn’t Match the Facts
When you look at the data, it’s clear that the AMC stock price is entirely detached from reality. And now Aron is fully immersed in the Reddit-fueled hype that he encourages.
Investors may want to sit this one out and watch the AMC stock story unfold from afar.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
