AMC Entertainment (NYSE:AMC) stock has faced both negative and positive developments.
A notable investment fund has sold its entire stake, but an analyst sees growth potential driven by expected box-office revenues. The theater chain continues to see outsized attention from meme-stock traders, leading to interest among retail investors.
However, despite AMC’s apparent recovery, this meme stock may not be the best option right now. Here’s why I think that’s the case.
Bridgewater Associates Sells Its Stake
In my previous writing in June, Billionaire Ray Dalio’s Bridgewater Associates previously held a position in AMC Entertainment worth $261,000. However, recent filings show that the firm completely sold its stake in the first quarter of this year.
The reasons for this decision are undisclosed. Long-term AMC shareholders have seen disappointing returns since the decline of the meme-stock trend in 2021.
It is possible that Dalio sought more promising investment opportunities and may have had concerns about AMC’s foray into gold and silver mining through its investment in Hycroft Mining (NASDAQ:HYMC) last year.
AMC stock has been on a downward trend, falling below its 50-day moving average, indicating a lack of near-term upside potential. Thus, there are technical reasons money managers aren’t buying this stock.
There are also sector-specific structural issues that are being considered. The theater industry faces challenges, and even the release of new blockbuster hits may not drive foot traffic growth. The popularity of streaming and at-home entertainment options has changed the landscape.
Considering these factors, I remain bearish on AMC stock right now.
AMC Continues to Struggle
AMC Entertainment is grappling with many challenges, making this a difficult stock to buy for the long-term. The cinema industry faces tough competition from alternative viewing options.
Indeed, the company’s declining patronage and substantial debt of over $4.8 billion underscore the obstacles it needs to overcome. In the first quarter, AMC’s sales were 21% lower than pre-pandemic levels, signaling the uphill battle to regain its previous success.
AMC faces challenges with declining business prospects, inflated revenue growth, and a high debt burden. The movie theater industry has changed significantly, and AMC’s recovery remains uncertain.
Despite some revenue increase in Q1, it is primarily due to lingering pandemic effects. The rise of streaming services and shifting consumer habits further complicate the situation. AMC has lost its meme stock status, experienced a significant stock price decline, and volatility is expected to continue.
What Now?
AMC Theatres is discontinuing its on-demand streaming service and partnering with Fandango’s Vudu platform.
Users of AMC Theatres On Demand can transfer their accounts to Vudu, which offers a wide selection of movies and TV shows for rental or purchase and free content. No subscription is needed for the service.
However, AMC’s financial woes remain and could become even worse in the future.
With declining box office revenues, high debt levels, and a shifting industry landscape, it’s difficult to predict if AMC will recover anytime soon. It is best for investors to avoid investing in AMC stock.
This meme-stock isn’t worth buying because of its current challenges and uncertain outlook. Investors would be better off investing in other stocks with more promising prospects.
On the date of publication, Chris MacDonald 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.
