The party is over in AMC Entertainment (NYSE:AMC) stock. You should have left it months ago. As I wrote in November, when AMC was trading near $40, the meme stock mania only bought AMC management time. It did not change the fundamentals of the business.
Before the pandemic, the movie theater chain did $5.4 billion in business, and lost money doing it. For 2021, it might do $1.5 billion in business. How is this worth $9.2 billion in market capitalization?
It’s not. It never was. Just because someone on Reddit tells you something doesn’t make it true.
The Reality
The reality is that AMC may never be a $5 billion business again. We’re not going back to the movies. Our home TVs are too big, their sound systems too robust, and the popcorn is better.
That may change once movies become full Virtual Reality (VR) experiences, but we’re still at the Lumiere stage there, with things like the Van Gogh Experience. Today’s offerings are primitive compared with what might be possible even five years from now.
Why would AMC be the company to exhibit them? At the end of September, AMC Entertainment was burdened with $10.2 billion in long-term debt and had just $1.6 billion of cash on hand. It will take a major investment to transform today’s theaters into VR experiences. It’s not like throwing on 3D glasses or changing the screens.
Meanwhile, AMC is reduced to giving shareholders worthless non fungible tokens (NFTs) reading “I own AMC.” Oh, and the popcorn. Meanwhile the top-grossing movie of 2021 did $572 million at the domestic box office, a fraction of 2019’s top grosser.
Despite reality, there are still people predicting a bounce back. After all, the stock was 74% higher in June. It’s like, if you drop a cat from a high enough building it’s going to bounce, right? Yes, but it’s still dead.
Maybe it doesn’t have to end badly, for management. They raised cash through stock and debt during the time of greater fools. CEO Adam Aron made $6.13 million last year. If you pay me that much, I’ll let you call me names, too.
People who analyze stocks for a living (I’m just a reporter) are telling you to sell. You’re down to just 4 analysts at Tipranks, and two have the sell light out, with the stock’s January 24 price of $17/share. Their average price target is about $8.
The collapse of speculation in Netflix (NASDAQ:NFLX) is seen, by some, as a reason to buy AMC. It’s not. Just because someone else’s bubble pops, that doesn’t mean yours is going to inflate.
So, should you short AMC? Right now, about 20% of the float is held short. In a rising market that’s a buy signal, I don’t know if anyone has told you this yet, but this is not a rising market.
The Bottom Line
Given a choice between AMC and Gamestop (NYSE:GME), the other big meme stock winner of last year, I’d take Gamestop. At least the video game industry has a future. But I wouldn’t really touch Gamestop with a barge pole.
The fact is I have the sell light out for nearly all entertainment stocks right now. Streamers have had their moment, but I don’t need more than one. We don’t know what the next big thing is. Virtual Reality, Augmented Reality, and the Metaverse have yet to create the “killer app” that will justify their hype. Movies seem so, well, 20th century.
I’d rather invest in what’s real, or at least in what’s now.
On the date of publication, Dana Blankenhorn held no positions in any company 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. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.
