There’s Simply No Good Reason to Buy AMC Stock

It’s been just over a year since traders on Reddit’s WallStreetBets incited the GameStop (NYSE:GME) trading frenzy and the term “meme stock” entered our lexicon. Early on, this retail army also set its sights on struggling movie theater chain AMC Entertainment (NYSE:AMC). An initial short squeeze in early 2021 took AMC stock from around $2 a share to over $20, while another one took shares to an all-time high of $72.62 in June.

Both times, the rallies proved to be unsustainable and AMC stock came crashing down. That’s not surprising when you consider the company’s broken business model and sky-high debt.

The short float on AMC stock is close to 19%. If the retail army decides to target it again, we could see another temporary pop in shares. But anyone who treats the stock as a long-term hold is likely to continue experiencing losses.

In short, there’s nothing to attract investors to AMC stock besides momentum and hype. How far shares fall depends on the market’s overall sentiment, the short float against the stock and the health of the movie theater chain.

Insiders Dumping AMC Stock as the Business Struggles

The streaming wars of 2021 led to fewer blockbuster releases. After sustaining heavy losses, some firms are likely to stop simultaneously releasing movies in theatres and on a streaming service.

What matters for AMC now, though, are the movie release plans for 2022. “Black Panther: Wakanda Forever,” “The Flash” and “Thor: Love and Thunder” are among this year’s anticipated box-office hits.

AMC could post decent revenue growth if movie theater visits rebound sharply from pandemic levels. However, coronavirus variants continue to put a damper on the movie business, delaying movie releases and sidelining staff.

As the company struggles to find its footing, insiders have been dumping shares at an alarming rate. CEO Adam Aron sold most of his shares late last year and another $7.1 million in January, which he said was part of his estate planning. In total, he has sold more than $40 million in shares.

While Aron is supposedly getting his affairs in order, retail investors have been left holding the bag as AMC stock continues to drop.

Few analysts offer a fair value on AMC stock. According to TipRanks, the five analysts who cover shares have an average price target of $8.17. That’s 45% below the current price.

There Are Plenty of Better Investments Out There

I can think of at least four better media plays for investors still toying with the idea of buying AMC stock.

You could consider buying shares of ViacomCBS (NASDAQ:VIAC), which have a price-to-earnings ratio in the mid-single digits. The company’s Pluto TV free streaming service has close to 50 million monthly active users.

Or there’s Roku (NASDAQ:ROKU), the streaming leader in the United States. In September, it was estimated by eMarketer that a third of the U.S. population used a Roku device.

Or how about Netflix (NASDAQ:NFLX)? The undisputed king of streaming content is trading more than 40% below its all-time high following the tech sector sell-off. As subscriber growth slows, Netflix is raising its prices to boost revenue, because it knows it can.

Finally, if you’re looking for a more direct play on the movie business, there’s Cinemark Holdings (NYSE:CNK). In the third quarter, the firm posted solid adjusted EBITDA of $44.3 million compared to a loss of $128 million a year before.

The Bottom Line on AMC Stock

AMC is a meme trade that came and went. Now that the easy money has disappeared, the company must prove it has a fundamentally sound business. That’s going to be a tough sell.

Fundamental investors are likely to continue to shun AMC stock until shares fall into the single digits. To trend higher, AMC needs to post strong results and issue upbeat guidance. Only then might shareholders who paid too much get their money back.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.