It’s been a bumpy ride for AMC Entertainment (NYSE:AMC) lately, and the ride seems to be far from over. Investor interest in AMC stock has been rising lately, but shares continue to trend downward, demonstrating little to no growth. It has been gradually sliding deeper into the red today and, as of this writing, is down almost 4% for the day. Despite some slight momentum earlier in the week, the stock has erased all gains and isn’t showing signs that a turnaround is imminent.
While AMC Entertainment Preferred Equity Units (NYSE:APE) are in the green today, AMC is facing a bleak landscape. This is part of what has led one market expert to describe it as a “zombie stock.”
Will AMC Stock Hit $0?
David Trainer is the CEO of New Constructs, an equity research firm specializing in fundamental data and insights. The company keeps a list of “zombie stocks,” a term it uses to describe stocks with poor fundamentals that boast an “unjustified” performance. AMC stock tops the list, which also includes fellow meme stocks Gamestop (NYSE:GME) and Beyond Meat (NASDAQ:BYND).
As Trainer sees it, AMC fits the Zombie stock criteria, in part because it is still up almost 50% for the year. He believes there is a very real possibility that AMC stock can fall to $0 and that investors should sell before it does. As he recently stated:
“This rally is totally unjustified and shows that many investors still haven’t learned the lesson on how to allocate capital intelligently, and is an opportunity for those that have risked owning this stock to sell it before it craters.”
Trainer also highlights concerns regarding the ways in which AMC is burning through its free cash and alleges that it has “inadequate profits to cover its debt interest payments.” A history of a negative free cash flow (FCF) is a fundamental element of the firm’s zombie stock criteria, and Trainer is highly skeptical of AMC’s ability to sustain a positive cash flow which he describes as a “meaningful period.”
It may sound extreme to some to suggest that AMC stock will fall to the dreaded $0 mark. But right now, it’s hovering around $5.80 per share, essentially one bad day away from plunging into penny stock territory. And Trainer makes a sound case for why investors should sell, highlighting the many negative elements that have kept the stock from demonstrating any real growth, even as plans for the APE reverse stock split keep the company trending. The unjustified rally is not something for investors to take comfort in.
Let the Credits Roll
In February 2023, InvestorPlace contributor Chris Lau made a similar case to Tanner’s as to why investors should sell AMC stock. He noted that the company is in “survival mode,” operating at a loss while loyal retail investors continue pouring money into it. This isn’t a good investment strategy, and it won’t yield any promising returns, as AMC still boasts the broken fundamentals that landed it on the zombie stock list.
Just as people tend to run away from zombies, investors should steer clear of AMC stock as it continues its downward trajectory. As InvestorPlace reports, AMC is an outdated company whose outdated business model has continuously rendered it unable to innovate. Now more than ever, it should be ranked among meme stocks to sell before they die.
On the date of publication, Samuel O’Brient did not hold (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.