AMC Entertainment (NYSE:AMC) is one of the most divisive stocks in the market today. On one side, legions of retail investors have passionately bought into the stock, fueling wild price swings and helping it become a poster child of the meme stock phenomenon. Conversely, traditional investors focusing on fundamentals have warned that the company’s deteriorating financials have put the stock on a dangerous long-term trajectory.
So, could the AMC party finally be coming to an end? Let’s dive into this idea a bit deeper.
AMC Stock: The Bull and the Bear Thesis
Of course, AMC’s bull thesis is easy to understand. The theater chain has a massive retail investor following, with millions of people cheering the stock on regardless of underlying business performance. This built-in buyer base can create short-term pops in the share price, as we’ve routinely seen over the past couple of years.
That said, betting on short-term retail-driven rallies is a risky endeavor. From a business perspective, AMC’s situation looks increasingly dire. The company has a massive $9.5 billion debt load and is still bleeding cash despite recent improvements. Its management team has also repeatedly put shareholders last, as evidenced by the recent APE stock fiasco that diluted existing shareholders. With all this in mind, I believe AMC heads lower over the long run.
Lightning Won’t Strike Twice
While GameStop (NYSE:GME) was an exceptional short-squeeze event, hoping this scenario will continue to repeat is unrealistic. It has been three years since the short-squeeze mania began, and the market’s appetite for such plays has diminished greatly. Much of this has to do with the shift from stimulus money and near-zero interest rates to interest rates at 5.5% and the threat of a recession.
Naturally, some will dismiss bearish opinions on AMC as somehow conspiratorial. But the numbers speak for themselves. AMC’s short interest sits at just 8.7%, hardly the recipe for a sustained short squeeze. Revenue and attendance remain well below pre-pandemic levels despite an impressive box office recovery. And with sky-high interest rates, that huge debt pile will become even more burdensome as the company refinances its debt moving forward, or dilutes shareholders further to pay down its debt load.
In my view, AMC’s management has pulled one rug too many from under shareholders. Constant dilution and transferring value away from common stockholders cannot be rewarded with investment dollars. Therefore, my take is that AMC is a “sell” here regardless of its potential for short-term pops. The stock appears trapped in a death spiral due to the company’s massive debt and inability to return to profitability. Of course, I could be wrong, but I believe retail investors should avoid putting new money into AMC stock.
The Bottom Line
While I understand AMC’s appeal to certain investors, its business trajectory looks highly unfavorable to me. With that said, every investor ultimately must make their own decisions.
My perspective is that the AMC party is ending, and fundamentals will eventually matter. The stock seems like one to avoid for those focused on building long-term wealth through equity investment. Only time will tell, but I am firmly in the bear camp when it comes to the meme king AMC.
On the date of publication, Omor Ibne Ehsan 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.
