AMC Entertainment (NYSE:AMC) stock seems immune to recent big moves.
Two “meme stock” waves have come and gone. First, the one that kicked off the trend, back in late January/early February.
Then, the one that occurred in June. Many “meme stocks” have fallen back to earth following their “to the moon” moves during both waves. But not AMC.
Instead, like GameStop (NYSE:GME), it’s held onto most of its meme gains. At $47 per share as of this writing, shares in the movie theater chain remain up more than 2150% year-to-date.
Given that it’s still being talked about extensively on Reddit’s r/WallStreetBets subreddit, that’s no surprise. The narrative surrounding it has seen little change.
Previously, I predicted that the narrative propping it up would collapse, sending it to a price more in line with its inherent value. Of course, this has yet to play out.
This stock’s self-proclaimed “Ape army” of retail traders remains long and strong. That said, don’t view this as a sign that it’s safe to dive into it today. The odds of it holding steady, much less heading higher in the long-term, remain slim.
Given the tremendous downside once the “AMC Apes” disband, and the shares again trade on fundamentals? It’s still a stock you should take a hard pass on.
AMC Stock: Meme Traders Continue to Prevail
The issue with AMC Entertainment stock isn’t just that it trades for a valuation out of sync with its underlying value. The company’s future prospects are also questionable as well.
Its popularity has enabled it to raise billions in capital. Per its most recent financials, it has $1.8 billion in its coffers. This leaves it at very little risk of having to file for bankruptcy, despite it still losing hundreds of millions per quarter.
But what is of concern with AMC stock is the odds that its business (owning/operating movie theaters) will fully recover as Covid-19 remains an issue.
As Variety reported last month, domestic box office numbers aren’t anywhere close to pre-pandemic levels. The performance of recent theatrical releases has been underwhelming. Delta variant fears still keeping many away from cinemas.
However, that’s not to say that things will make a complete comeback once the pandemic finally wraps up.
The continued rise of streaming services remains a possible roadblock to a full recovery as well.
A recent deal it made with AT&T’s (NYSE:T) WarnerMedia unit to ensure a theatrical window remains for new Warner Bros. releases is an encouraging sign. But with a theatrical window of just 45 days, many viewers may still opt to wait a month-and-a-half.
It might make sense to catch new Warner Bros. titles on HBOMax, rather than shell out at least $10.50 per ticket to see it on the big screen sooner.
Nevertheless, the “AMC Army” continues to be in the lead. Skeptics such as myself have yet to be proven right but, despite the Reddit set’s continued success, it’s still best to stay away.
Massive Downside and Limited Room for Gains
AMC stock may have enough on its side now to remain at or around current prices (about $50 per share). Even deep-pocketed skeptics, like famed short-seller Jim Chanos, are only making small bets against it.
But that still doesn’t mean you should dive into it.
First, the upside potential is limited. Those who already bought it and refuse to sell may be able to keep it from falling. That’s why it’s been able to trade well above its underlying value.
To move higher, the pool of meme investors needs to expand. Without that, it’s going to be tough for shares to move back to above $60 or $70 per share.
Second, in contrast to the stock’s limited upside, downside potential is massive. Once the “Ape Army” decides to cash out and fundamentals become the main driver again, AMC could fall to substantially lower prices.
Running the numbers before, even a $10-$15 per share valuation seems stretched. As InvestorPlace’s Samuel O’Brient reported on Sept. 7, Macquarie Group analyst Chad Beynon recently gave the stock a $6 per share price target.
That’s more than 87% below where it trades today.
Don’t Guess How Long AMC Will Stay Strong
Thanks to its loyal shareholder base, AMC Entertainment may be able to continue deferring the collapse of its stock price, but any sort of change to market conditions, like a correction or sell-off, could make many still holding skittish.
Once they cash out the stock could fall to a price reflective of its true underlying value. Based on the above-mentioned sell-side analyst’s recent estimates, that could be as low as $6 per share.
Bottom line: with more than 87% potential downside and questionable room to run, stay away from AMC stock.
On the date of publication, Thomas Niel 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.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.