AMC Stock Is Running Out of All That Time It Borrowed

AMC Entertainment Holdings (NYSE:AMC) stock was, like Gamestop (NYSE:GME), one of the “meme” plays that could do no wrong earlyier this year.

AMC (AMC) stock is displayed on the Robinhood app with the Reddit logo in red in the background.
Source: viewimage / Shutterstock.com

Shares were trading at about $2/each before small Robinhood Markets (NASDAQ:HOOD) traders, organized on Reddit, started boosting it in January. AMC stock peaked near $60 in June. They trade today at about $38.

AMC stock is falling despite earnings that beat street estimates. The company said it lost $224 million, 44 cents per share, on revenue of $763 million. Analysts had been expecting a loss of 53 cents/share and revenue of $708 million.

That’s the upside-down nature of today’s market. Stocks can fall on good news just as they rise on the threat of complete disaster. It’s all in the hands of investors like you.

A Closer Look at AMC Stock

Management seems aware that its valuation makes no sense on $2 billion in business, less than half of what it did in 2019. They’re doing whatever the memesters might want them to do, to justify their love.

Do you love movie theater popcorn? I don’t, but CEO Adam Aron hopes you do and will buy it freshly made at stores and in kiosks next year. AMC will also offer captioning at select theaters for hearing-impaired moviegoers.

How about an AMC branded credit card? AMC’s chief financial officer read out a list of such crazy ideas, all culled from Reddit, during the company’s post-earnings conference call.

Here’s one. How about an AMC cryptocurrency, or NFTs built around movies? Why not? Aron hopes the NFT business can generate growth and that the pandemic fading can generate more.

On a practical level, AMC is teaming with Walt Disney (NYSE:DIS) on “surprise screenings” over the Nov. 12-14 weekend.

The showings will cost just $5 each and include a cartoon. Movie producers are anxious to get people back into movie theater seats. They make more money at the box office than on even a pay-per-view stream. Theaters also justify those big effects budgets.

Is the Show Over?

Indications are growing that the merry-go-round is slowing and the AMC stock show may be ending.

The Federal Reserve wants the whole meme stock game to end, saying it threatens financial stability. The fear is that meme stock investors, often new to the market, may be taking on debt and using options that can cost more than their investments. This means AMC stock will collapse once memesters cash-out and move on.

The bigger problem is that the biggest memesters, who call themselves “apes” because traditional analysts think them dumb, believe the market is rigged. Spreading that view into a generation of investors really could hurt the market.

The Bottom Line

The market is rigged, but it’s the memesters who have been doing the rigging.

Crowds always follow what they considered a hot hand. The story is always the same, and it always ends in tears. Maybe there is one squeeze left in AMC, thanks to those good earnings. 

But does it really matter?

In its best year, 2018, AMC earned $110 million on revenue of $5.4 billion. It’s not a growth company, nor is it wildly profitable. It’s essentially a retailer, like Walmart (NYSE:WMT), which trades at a discount to its revenue because margins are narrow.

To me, it means that, even on its best day, AMC should be worth $4-$5 billion, tops. Do the math. If you’re in, get out now. If you’re out, stay there.

On the date of publication, Dana Blankenhorn held no positions in stocks mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. Just in time for the holidays he has a collection of COVID-19 stories https://www.amazon.com/Bridget-OFlynn-Virus-COVID-19-Pandemic-ebook/dp/B09K8PSQC8/ at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.


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