It’s fine to monitor AMC Entertainment (NYSE:AMC) stock from a distance, the last thing you need is to lose your shirt on a high-risk meme stock, and we’re assigning it an “F” grade today. GameStop (NYSE:GME) and AMC Entertainment rallied sharply during meme-stock mania in early 2021. Then, plummeted in 2022 and 2023.
Some overeager investors might feel that “this time is different,” but those are famous last words of unsuccessful traders. Sure, AMC Entertainment provides exciting cinematic experiences, but don’t expect a happy, movie-like ending to the meme-stock frenzy of 2024.
The Strange Reason for the AMC Stock Rally
In mid-May, AMC stock shot higher but it had nothing to do with the company’s fundamentals. As we explained in detail here, it only happened because a former meme-stock celebrity resurfaced on social media.
That’s a flimsy reason for a massive share-price rally. It was based on nostalgia and FOMO (fear of missing out), and just like the early-2021 rally, the meme-stock trend of 2024 won’t be sustainable for the long term.
As the old Benjamin Graham/Warren Buffett saying goes, the stock market is a voting machine in the short term but is a weighing machine in the long term. Assuredly, the market’s weighing machine will weigh on AMC stock, eventually.
Remember, AMC Entertainment remains unprofitable and the company’s first-quarter 2024 revenue declined year-over-year. AMC Entertainment CEO Adam Aron hinted at potentially weak financial results for the current quarter.
AMC Entertainment’s Debt Load Is Still Huge
Not long ago, AMC Entertainment sold 38.5 million of its shares in order to raise capital. When a company like AMC Entertainment sells a large number of shares, it’s a red flag for two reasons.
First, it suggests that the company might be desperate to raise capital quickly and by any means necessarily. Second, large-scale share sales may raise concerns about share-value dilution.
But hey, at least AMC Entertainment was able to raise $124.1 million by selling those 38.5 million shares. Also, in a separate incident, AMC Entertainment disclosed its sale of 72.5 million shares in order to raise $250 million.
It’s a problematic way to raise capital, but this is one way that AMC Entertainment could reduce its debt load.
Additionally, AMC Entertainment took advantage of the meme-stock rally and, according to Bloomberg, exchanged “$164 million of its 10% notes due 2026 for 23.3 million shares of newly-issued stock.”
So again, AMC Entertainment is raising capital but also creating share-dilution concerns because of the “newly-issued stock.”
Besides, these capital raises are small when compared to AMC Entertainment’s debt burden. As Bloomberg pointed out, AMC Entertainment ended 2024’s first quarter with roughly $4.5 billion of long-term debt.
That’s much greater than AMC Entertainment’s $624.2 million worth of cash and equivalents at the quarter’s end.
AMC Stock: Watch for the Weighing Machine
The market’s weighing machine will feel the weight of AMC Entertainment’s massive debt load sooner or later. In the short term, though, meme-stock traders might exert control over the AMC Entertainment share price.
Don’t assume that the meme-stock frenzy will work out in your favor over the long term. AMC Entertainment has identifiable financial issues, and a repeat of the post-2021 meme-stock rout could easily happen in 2024.
Therefore, we’re giving AMC stock an “F” grade and definitely not recommending an investment in AMC Entertainment today.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
