Right out of the gate, I want to make clear I believe AMC Entertainment (NYSE:AMC) is a terrible investment. In addition, I think GameStop (NYSE:GME) stock is also a terrible investment. So I have no bias one way or another in this competition between the two most popular meme stocks.
If you want to read why I’m so bearish on AMC and GameStop, I discuss that here and here.
This story is for the meme investors themselves who are looking to buy and hold for the long term. Which meme stock is likely to outperform the other in coming years? I’m putting AMC stock head-to-head with GME stock on six different measures. Together, we will determine which stock is likely the better long-term meme investment.
Revenue Trends: AMC Stock Wins
This comparison is about as simple as it gets. Both AMC stock and GME stock had their revenues crushed during the 2020 pandemic. I’m looking at trailing 12-month revenue from the beginning of 2015 to the beginning of 2020. How were these companies’ revenues trending before the pandemic?
It turns out GameStop’s revenue peaked back in 2012. From 2015 to 2020, revenue dropped 21.1%. During the same stretch, AMC’s revenue more than doubled at 103%. If your company’s business is shrinking, it’s probably not going to be a great long-term investment. AMC stock is the clear revenue winner.
Earnings/Losses: GME Stock Wins
From 2016 through 2020, AMC generated a net loss of more than $5 billion. If you remove 2020 from the equation, AMC generated a net loss of $414.5 million from 2016 through 2019. AMC has turned a net profit in just two of the past five years.
In its past five fiscal years, GameStop has generated a net loss of $971.3 million. If you remove 2020 from the equation, that net loss is just $756 million. GameStop has also been profitable in two of its past five fiscal years.
This measure is a brutal one for both companies. Both are clearly struggling with profits, and both are still generating heavy losses as of their most recent quarterly reports. I’m going to give the earnings nod to GME stock as the winner simply because of how ugly that $4.6 billion net loss in 2020 was for AMC.
Debt And Balance Sheet: GME Stock Wins
AMC stock currently has $5.5 billion in total long-term debt. That long-term debt has risen by 43.7% over the past five years.
At the same time, GameStop currently has $47.5 million in long-term debt. Surprisingly, GameStop’s long-term debt has actually declined by 94.1% over the past five years.
This is another category with a clear winner. AMC has one of the worst balance sheets in the entire market, which is why it was on the brink of bankruptcy in early 2021. The company has avoided bankruptcy for the time being. But that debt and the interest associated with it will remain an albatross for AMC stock investors. GME stock wins this one.
Shareholder Dilution: GME Stock Wins
When it comes to shareholder dilution, it’s another no-brainer. The reason AMC was able to avoid bankruptcy in 2021 is because meme stock traders allowed AMC to flood the market with new shares of stock to raise desperately needed capital.
AMC’s shares outstanding are up 403% in the past five years. In that same stretch, GameStop’s outstanding share count is down 25%. GME stock is the clear winner.
Short Interest: AMC Stock Wins
The entire meme stock trading fiasco started with Reddit traders deliberately triggering short squeezes. So what’s the short squeeze potential for AMC stock and GME stock these days?
AMC currently has a short percent of float of 17.4%, according to Ortex Analytics. GameStop’s short percent of float is currently 12.2%.
Year-to-date, GameStop’s short interest is down 89%, while AMC’s is still up 133.5%. If either stock still has potential for another short squeeze in the near-term, its AMC stock.
Valuation: GME Stock Wins
Without earnings, it’s difficult to assess these two stocks from a fundamental perspective. Analysts are currently expecting GameStop to report 15 cents in EPS in fiscal 2023. AMC is not expected to be profitable through at least 2022.
AMC stock trades at 23.5x sales compared to a price-sales ratio of just 2.5 for GME stock. In the past five years, AMC’s P/S ratio is up 1,310%, while GameStop’s is up just 693.5%.
These two stocks are both ridiculously overvalued based on their businesses. The only way GME stock looks attractively valued is when it is compared to AMC. GME stock wins.
And the Winner Is …
Congratulations to GME stock investors. Your meme stock appears to be a better investment than its high-profile counterpart.
But rather than investing in the best of the worst stocks in the market, serious long-term investors would be much better served forgetting about AMC and GameStop all together. Instead, buy and hold a low-cost S&P 500 index ETF, such as the Vanguard 500 Index Fund ETF (NYSE:VOO).
On the date of publication, Wayne Duggan held a long position in VOO. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book “Beating Wall Street With Common Sense,” which focuses on investing psychology and practical strategies to outperform the stock market.
