Chances are, the names Daniel E. Ellis, Stephen A. Colanero, Chris A. Cox and John D. McDonald don’t mean much to you. Well, if you’re heavily vested in AMC Entertainment (NYSE:AMC) stock, they should matter to you.
Along with CEO Adam M. Aron, these executives have been dumping shares of AMC stock like mad in this month alone.
What’s even more interesting is that between Nov. 5, 2021 and Jan. 14, 2022, the peak-to-trough gap in the transaction price is a bit over 100%.
From a little over $41 to a few cents above $20, executives who know the underlying business the best have been exiting AMC stock like they couldn’t get rid of it fast enough.
To be fair, insider selling isn’t the end-all, be-all. Many times, executives will sell off some of their shares to fund personal expenditures — maybe a new house, a new yacht, a Lambo, whatever.
Frankly, you probably would do the same under similar circumstances. Taking profits, whether as an entrepreneur or as an investor, is healthy and generally well-advised.
You see, capital valuations can be cruel, as we’re all getting a taste of right now. So, as a basic principle, I don’t begrudge AMC execs securing their fiat currencies from AMC stock.
However, when multiple executives covering various divisions within the business seemingly all want to get out, alarm bells should go off. It’s also concerning that while the CEO is pumping up the integration of the box office with the latest financial technologies such as cryptocurrencies, he’s selling off his shares of AMC stock.
Now wait a minute: why create this exciting buzz about AMC when a few days later, you’re dumping a sizable chunk of your holdings?
It’s time to read between the lines.
With AMC Stock, Don’t Be the Last to Know
Many years ago, YouTube personality Don Harrold posted an excellent video (long since taken down, unfortunately) criticizing the “buy physical” meme that permeated the precious metals sector. In it, he mentioned that as a retail consumer of bullion bars and coins, you are the last in line to receive your money.
In other words, the folks that extracted the metals have gotten their money. So too did the folks that refined the metals into whatever form the retail market demanded. Finally, the actual retailer got their money when they sold the bullion to you.
So you do you get your money? You need to wait for when the metals rise in value beyond your net cost, if at all. As Harrold said, you’re the last in line and so it is with AMC stock.
While AMC the entity has been busy marketing its recovery narrative — as any legitimate business would do — its executives have been busy enriching themselves throughout the new normal. From what I can tell from the data, the last time an insider bought shares of AMC stock was in May 2019.
Therefore, when the cineplex operator caught fire as a meme trade, the folks in the upper echelons of the supply chain took the cash. Retail investors must wait for shares to rise beyond their net purchase cost.
To further cement the analogy, if AMC the company becomes insolvent, holders of AMC stock will be the last in line for the company’s assets. That means creditors, bondholders and preferred shareholders are paid out first before common stockholders get their money if any remains.
When the business environment gets shaky, you’re in a bad situation as a common stockholder, especially if the execs are abandoning ship.
Lessons Can Be Learned
While the precious metals sector has almost nothing in common with AMC stock, the investment fervor between the two were virtually identical. At a certain point, people were buying both assets for a good reason, a bad reason or no reason at all.
It’s a classic example of why investment professionals urge their clients to stay unemotional about their decision-making process. Do too many silly things in the kitchen and you’ll likely get burned.
Still, the silver lining is that folks can choose to take AMC stock as a growing opportunity; specifically, as the last in line, you should take profits as they come, especially if you’re dealing with a speculative, non-dividend-bearing trade.
That way, you can find yourself in a position where, like me, you’re playing with house money. I may not have sold most of my shares at the peak but I’m glad to have gotten rid of that core holding when I did.
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.