AMC Entertainment (NYSE:AMC) is down 75% from its 52-week high set in June 2021. But that means that AMC stock is also up over 7,000% from where it was a year ago.
And that, fellow investors, summarizes the debate surrounding the meme stock. Both sides have facts to support their beliefs. And only time will tell how this story will end.
The debate about the fortunes of AMC stock is circular, but not pointless. However, right now both sides can be rightfully accused of cherry-picking data points and anecdotal observations that support their pre-formed conclusion.
The reality is that, by almost any measure, the retail army known as the Apes have done a tremendous job in breathing life into a company that almost certainly was headed for bankruptcy without them. But is this a question of winning the battle but losing the war?
It’s hard for me to see the company’s current business model, which relies on a mass of individuals congregating in an enclosed brick-and-mortar setting being successful in a post-pandemic world. However, as I say that Spider-Man enters the chat room and gives the Apes a $587 million dollar spear to poke a hole in my theory.
What Can AMC Learn From Other Industries?
In the short- to medium term, the plan for AMC Entertainment seems to be to capture a larger market share of a smaller market. To that end, the company is in the process of acquiring more theaters. The game plan seems to be to have more theaters with fewer showings and higher prices. I like the last two ideas. It’s the idea of more theaters that I question.
Consider the problem bookstores faced (and still face) with the growth of digital media. Consumers still wanted books they just wanted to consume it in the way they wanted. I get that. As popular as e-readers have become, I still find everything about reading an actual book more enjoyable.
But that doesn’t support the model of a bookstore on every corner.
In the same way, people still want to watch movies. And there will always be a segment of the population that wants to go to a movie theater.
But that doesn’t support a model where AMC has over 600 theaters in the United States alone.
Is it Time to Shrink the Pie Even More?
What I’m suggesting falls under the scarcity principle. Having fewer theaters won’t be a deterrent for those that still want the movie theater experience. But if may have the advantage of making going to the movies an event. A destination.
To use another example, I look at the situation with malls in small-town America. Our “local” mall died a slow death when malls 50 miles to our south and east were still getting significant foot traffic. The simple fact was that these malls were destinations and consumers would make a day of shopping, eating and … perhaps taking in a movie?
What to Do With AMC Stock?
At this time, there seem to be both technical and fundamental reasons to believe that AMC stock may be ready to rally. But without knowing what the company has planned for its next chapter I can’t get too excited about that future.
Much like who is going to play quarterback for my favorite NFL team next season, I have my opinion about AMC stock. And until proven wrong, I’ll believe I’m right. But the thing about sports debates, like debates about the meme stocks is that both sides can continue to argue far after the fight is worth having.
Analyst sentiment about AMC stock remains bearish. And without knowing what AMC plans to do for its next chapter, that’s good enough for me.
On the date of publication, Chris Markoch 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.
Chris Markoch is a freelance financial copywriter who has been covering the market for eight years. He has been writing for InvestorPlace since 2019.