AMC Entertainment (NYSE:AMC), the largest cinema chain in the U.S., is facing not just secular headwinds like the growth of streaming and inflation but also the following three problems that will keep its share price from appreciating significantly in the future. This may have wide-reaching implications for AMC stock investors.

The cinema industry has faced many challenges in 2023 since the COVID-19 pandemic. While moviegoers were more than happy to fill cinemas after the country began reopening in mid-2021, people have also become used to consuming media at home on their television screens as streaming services have grown in number.

Moreover, inflation has also eroded the purchasing power of many households, making them more selective about their entertainment spending. With these broader challenges and specific issues, AMC’s stock faces an uphill battle.

Here are some more reasons to consider dropping AMC stock.

A high debt burden compresses cash flow margins

AMC stock has accumulated a massive debt of nearly $5 billion in long-term debt obligations, mainly due to its aggressive expansion strategy and acquisitions of other cinema chains. A lot of AMC’s debt is relatively high interest, with certain notes requiring the cinema chain to pay as high as 10.00% or 12.75% annual interest, per the company’s recent 10-Q filing.

As a result, AMC has been unable to generate enough cash flow to service its debt obligations and has relied on issuing more shares and bonds to raise capital. Most recently, in September, AMC’s shares plummeted 14% upon announcing the sale of 40 million shares to shore up its liquidity position. While AMC probably had little choice in this matter, the decision ultimately has diluted the value of existing shares.

With interest expense also helping to compress margins, investors should not expect improved profitability anytime soon.

Competition has eaten away at AMC’s stock price growth

AMC faces intense competition and declining customer loyalty. AMC operates in a highly competitive industry. A decade ago, this probably had not been the case, but now, the movie theater chain operates in a completely different space. Nowadays, there are not only other cinema chains to compete with, but there are also streaming platforms and home entertainment systems.

AMC has failed to differentiate itself from its rivals and has not invested enough in improving its customer experience and loyalty programs. This is most clearly reflected in the company’s top-line growth trend. In 2021 and 2022, revenue growth came in at 103.5% Y/Y and 54.7% Y/Y, respectively, and this was, of course, directly related to pent-up consumer demand after pandemic restrictions forced people to stay at home.

Unfortunately for AMC, in 2023, revenue growth has largely slowed and could continue to do so as the economic outlook remains uncertain and as consumers seek entertainment via different mediums.

Weak growth outlook should make long-term holders worried

The reasons stated above for why investors should be concerned for their AMC shares could be overlooked if the company maintained a positive outlook, but that has yet to happen. According to their Q2’2023 earnings call, AMC still deals with high rents in certain cinemas and low customer traffic.

Management also noted the need to conserve cash by reducing capital expenditures soon. While this is a welcomed move, especially for a company with generally compressing margins, that also implies AMC will likely be unable to capitalize on opportunities that could spur future growth.

AMC’s management also mentioned during that earning call the potential for M&A to bring existing movie theaters into the AMC network, but even those lacked sufficient details. All in all, shares having collapsed 69.5% since the start of the year, it’s difficult to see how the once successful movie theater chain will be able to grow from here.

On the date of publication, Tyrik Torres 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.