Don’t be heartened by recent positive news surrounding AMC Entertainment (NYSE:AMC) stock.
That’s quite a negative sentiment to hold, but it makes sense. Even as AMC stages a turnaround and large institutional investors buy into its shares, the longer-term implications are clear.
AMC won’t emerge better following the pandemic and the support of ‘Apes’ (meme investors). The short-term news is positive, but I wouldn’t suggest buying into it.
AMC is pretty much running at full capacity, which is clearly good news. As of Sep. 30, it was operating 99% of its 596 domestic theaters and 99% of its 351 international theaters.
That is part of a greater third-quarter story which saw AMC drastically increase its revenue base. The $763.2 million it recorded in Q3 revenues was several-fold more than the $119.5 million in Q3 of 2020.
That isn’t surprising given how much has changed in relation to the pandemic and vaccines in that span of time. Nevertheless, it’s reason to be positive at least. And that is causing some investors to dive into AMC shares.
When we see Apes pounding the table over the opportunity AMC stock represents, it’s relatively easy to ignore their noise. But when we see more conservative institutions take a position in AMC, that’s quite different.
In this case, that institution was the California State Teachers’ Retirement System (CalSTRS). The nation’s second largest public pension by assets very recently increased its position in AMC. In Q3, Calstrs upped its position by 133,512 shares to nearly 690,000 AMC shares. No matter how you slice it, that’s fundamentally different from AMC Apes making large collective movements into AMC stock.
So, given that revenues jumped, capacity is full, and a retirement system is more heavily on board with AMC; doesn’t that bode well? The answer for the short term is yes. But what continues to astonish me is that investors believe AMC is a good buy-and-hold stock.
Short Term Catalysts
Pundits are conflating short-term news with a long-term turnaround; news which includes record single-day ticket sales for Spider Man: No Way Home.
AMC had its biggest single day of ticket sales since the onset of the pandemic, and second biggest ever. Part of that success had to do with the rising interest in non-fungible tokens (NFTs). According to The Wall Street Journal, “A key driver of the immense sale of these tickets was that AMC and Sony Pictures collaborated to offer the first ever NFT promotion by a major theatrical exhibitor. A limited quantity of up to 86,000 NFTs were made available for AMC Stubs Premiere, A-List and Investor Connect members, with one NFT being given per qualifying member.”
That’s all good and well, and congratulations to AMC. But even though the company had a great box office for this movie doesn’t change the longer trend.
The idea that AMC will somehow come back bigger and stronger doesn’t have much merit. In 2022, AMC is expected to see approximately $4.7 billion in revenue. That will be a massive spike from the $2.5 billion it should record in 2021.
But what I fail to understand is why investors would give any credence to the idea that a turnaround is in the works. In 2019, AMC recorded $5.4 billion in revenue. So, it won’t return to 2019 pre-pandemic levels.
Share prices were well under $10 at that time. It only makes sense that the laws of gravity will pull it back down again. No one cared about AMC before it burst onto the scene. And there’s every chance that happens again. So, the story remains the same: very few people truly believe in AMC over the longer term. That means when the decline takes hold, it’ll move quickly. Don’t be caught holding the bag when it does.
On the date of publication, Alex Sirois 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.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.