AMC Entertainment (NYSE:AMC) has more bad news to report. It’s been a difficult year for the leading theater chain, which has managed to shed more than 83% of its value throughout the year. While market momentum has turned against AMC stock in recent months, much of its troubles can be attributed to the company’s failure to innovate. But recent attempts to change that haven’t panned out. AMC has confirmed that its negotiations to acquire some of Cineworld Group’s (OTCMKTS: CNWGQ) properties have ended without a resolution. This represents another failure to innovate and move away from an outdated business model.
Yet, AMC stock hasn’t reacted badly to the news. On the contrary, it’s currently in the green. But does this make the fallen meme stock a buy?
Let’s take a closer look.
What’s Happening With AMC Stock
As is typical, AMC stock has been volatile this morning. As of this writing, it’s up 4% for the day, though it could easily move in either direction. That said, shares did rise today during premarket trading, though not by much. Overall market momentum today is positive, as both the Dow Jones Industrial Average and S&P 500 are in the green and rising. But AMC’s failure to reach a deal with the struggling Cineworld doesn’t bode well for the coming year. As Seeking Alpha reports:
“While AMC reserves the right to continue to explore the acquisition of the assets, there can be no assurance that any discussions [will] resume, AMC said in an 8-K filing. AMC (AMC) planned to finance the purchase through issuance by AMC of APEs and debt financing provided by the lenders of Cineworld.”
For the bankrupt Cineworld, selling theaters to AMC would make a lot of sense. But according to the Wall Street Journal, the reason for the sale’s failure can be traced back to AMC Preferred Equity Units (NYSE:APE). Despite rising today, APE has had a worse year than AMC and hasn’t traded above $1 in over a month. The Journal reports that its steep price decline rendered the deal “uneconomical for now,” according to a source close to the company. This comes just a day after CEO Adam Aran disclosed that AMC had generated $162 million from APE. Apparently, it wasn’t enough to help AMC reach an agreement with a bankrupt competitor.
Given the highly discouraging performance that APE has displayed, it’s hardly surprising that it would be weighing on AMC’s progress. However, it is important for investors to see the bigger picture here. Even when AMC has positive news, it demonstrates little, if any, growth. Last week, it announced plans to launch a new payment card with Visa (NYSE:V) but it had hardly any effect on AMC stock. Closing the deal with Cineworld would have helped AMC expand its theater empire, signaling actual growth. If the company’s finances won’t allow it to do that, there’s little chance of it finding other means of expansion in the coming year.
Today’s news should remind investors why AMC stock should be ranked among meme stocks to sell before they fall even further. Both AMC and APE have proven repeatedly that the show is over for the company.
On the date of publication, Samuel O’Brient 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.
