I’ve been fortunate with what under any other circumstance would be labeled horse manure investments. From meme trades to cryptocurrencies, certain decisions have made me look a lot smarter than I am. However, I can’t say the same about AMC Entertainment (NYSE:AMC). My position and subsequent exiting of AMC stock was pure fortuitous luck.
A few years back, I decided to place a speculative bet on shares of the now infamous cineplex operator. At the time, I reasoned that the social experience element of the box office represented an underappreciated catalyst, one that could not be duplicated with the flatscreen in your living room. Of course, I was terribly wrong — embarrassingly wrong, really.
Then came a ludicrous development that, if it weren’t true, would be hardly believable. Driven largely by a desire to make Wall Street hedge funds pay for the disaster they wreaked in 2008, retail traders apparently coordinating their efforts through social media channels deliberately took the opposite bet on AMC stock.
As you know, the subsequent short squeeze that panicked out short sellers worked like a charm. AMC stock shot straight to the moon, to the use the common parlance. It should be noted that at least part of the bullish narrative stemmed from traders looking back at AMC with nostalgia and thus wanted to protect its honor, so to speak.
Unfortunately for me, these folks didn’t want to have that nostalgic feeling back in the years leading up to the pandemic, but, whatever. The price of AMC stock jumped so much that I was able to escape my poor position (plus interest). Not only that, I left some in, just in case the lunacy had more legs.
Sadly, the ride might be coming to an end.
The AMC Stock Call is Coming From Inside the House
Because this is the internet and because we’re talking about AMC stock, there’s a shoot-the-messenger sentiment with the underlying investment. It’s something akin to someone in the audience shouting at the screen, “…don’t go in there.”
Hopefully, though, you’ll look at the facts and make the best decision possible.
Recently, some eyebrows were raised when key executives decided they had enough with the journey. As Wccftech.com noted:
Data from the SEC lists down the share sales made by AMC’s CEO Mr. Aron Adam, its executive vice president, worldwide programming & chief content officer Ms. Elizabeth Frank and its senior vice president and general counsel Mr. Kevin Connor during the first two weeks of this month. It shows that cumulatively, the three executes have sold 460,184 shares so far, in the direct market, at an average price of $22.91. This results in $10.5 million of stock sales by the insiders since 2022 kicked off.
But the aforementioned transactions are not the only worrying components for AMC stock. Indeed, the story goes deeper. Throughout 2021 and throughout 2020, insiders up and down the executive spectrum have been dumping shares. If I’m reading the list correctly, you have to go back to May 2019 to find someone working there who was buying shares.
To be fair, many analysts say that insiders selling their own stock isn’t necessarily a sign that you should follow suit. Especially if the selling is done by one cog in the executive gearbox, it may be an isolated incident than anything nefarious. I can somewhat appreciate this concept.
But on balance, my opinion is that insiders exiting their own shares is not a positive development. In fact, it kinda ticks me off. Why in the name of perdition should you, an average investor, buy shares when the folks that are selling you the very idea to buy are the ones selling the most?
Logic Matters
Many years ago, I came across a YouTube comment war that featured a drop the mic moment. Some self-proclaimed investment guru was trying to sell his system to his subscribers, to which someone responded (and I’m paraphrasing here), if your system actually worked, why are you selling it?
Ouch. That’s what I call a Dillahunty, named after popular atheist Matt Dillahunty. The commenter was correct. If a system worked to the degree that was marketed (I forget what it was, 70% of the time, maybe), you would use that system to eventually make all the money in the world.
As Dillahunty might say, “if a deity exists, prove it.” Don’t appeal to holy books to verify the validity of themselves. Prove the case empirically.
Well, it’s the same basic logic you should apply with AMC stock. If AMC was really a wonderful investment, the insiders would hold onto it; heck, they’d buy even more shares! Because then, they would be able to buy more boats and mansions and Lambos and whatever.
But they don’t believe that, obviously. Because if they did, they would buy more instead of dumping it like hot garbage. Don’t make this angle more complicated than it needs to be.
On the date of publication, Josh Enomoto held a LONG position in AMC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
