AMC Entertainment (NYSE:AMC) stock couldn’t hold on to all of its gains after the recent meme stock rally. After soaring 32% in one day following the social media return of Roaring Kitty, it gave back more than one-third of them and has essentially held that position since.

Many believe AMC stock will still take the next leg lower eventually, but private equity has been buying up shares and establishing significant positions in the movie theater operator.

It amounts to a big vote of confidence for AMC Entertainment. It suggests they believe the cinema stock can make a U-turn and generate substantial gains again. The question for investors is, should you follow the smart money and buy AMC stock too?

Wall Street Feeding Frenzy

MarketBeat recently reported hedge funds and mutual funds were big buyers of its shares. The site noted Quadrature Capital bought more than 645,500 shares in AMC Entertainment in the fourth quarter, quadrupling its holdings to 818,077. It increased the portfolio’s holdings value to $5 million.

Other funds were buying as well. MartketBeat said Vanguard Group bought almost 6.6 million shares during the quarter, raising its stake to $123.5 million.

Virtu Financial established a new position in the theater operator worth $202,000. Seven Eight Capital also staked out a new claim in AMC stock worth $1 million. Several other firms bought in as well.

Between Oct. 1 and Dec. 31 last year, AMC Entertainment grew from $8 a share to as much as $11 a share but ended the year at $6.12 a share.

Admittedly, the theater stock has diluted its shareholders significantly over the years, particularly during the meme stock rally three years ago.

There are now over 295 million shares outstanding so the positions are not anywhere near controlling positions or even significant holdings despite the money spent. Yet they do indicate support for the company.

Summer Bummer for AMC Stock

Still, is it worth it to buy AMC Entertainment stock yourself? It is hard to argue in favor of the idea.

The movie industry is hurting. Although Disney’s (NYSE:DIS) Inside Out 2 did well with a $154 million release while Bad Boys: Ride or Die garnered $56 million on its opening weekend, these are not blockbuster numbers.

AMC Entertainment needs a summer of big box office films to get people into the seats and it’s not happening.

Where summers used to be filled with 10 or more blockbuster films, cinema is lucky to get two in a year now. That’s not a sustainable business model for AMC.

Theater owners suffer when movie studios’ films fail because they share the box office revenue. 

And it’s not just AMC getting half the money but it is also split with other nationals chains such as Cinemark Holdings (NYSE:CNK) and Cineworld Group, the owner of Regal Theaters.

Independent theater operators also get a cut. AMC might get the largest portion because of its size but there is a reason it has reported losses for the past five years.

Yes, the pandemic played a big role in AMC’s worst years but even now attendance isn’t returning to pre-COVID levels. Movie ticket sales are down 23% this year from last year.

Bringing Down the Curtain

While smart money support is a positive development for AMC stock, it doesn’t tell you the whole story. 

Quadrature Capital, for example, ended up unloading half its shares sometime after December.

In a subsequent filing on April 8, the private equity firm revealed it only owned 420,186 shares valued at $1.1 million. It’s a sizable increase, almost triple the amount from six months ago, but it indicates lower confidence from institutional investors than previously thought. 

Of course, AMC Entertainment shares are up 64% since that filing so the PE firm left a lot of money on the table but there is no reason to believe the theater business is going to improve. Investors should still avoid AMC stock.

On the date of publication, Rich Duprey 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.