Don’t Expect an Encore Performance From AMC Stock
AMC Entertainment (NYSE:AMC) has taken investors on a roller-coaster ride of emotions since it burst into the spotlight in early 2021 amid the meme-stock trading frenzy. But with uncertainty in the markets causing investors to adopt a “risk-off” stance, the show may finally be over for AMC stock.
Since hitting an all-time high of $72.62 in early June, AMC stock has plummeted nearly 80% to around $15 a share. Admittedly, most of the sell-off had to do with changes in the market, not changes related to the company itself. The movie theater chain recently reported fourth-quarter results that were in line with expectations.
Although the self-described “AMC apes” may have stuck around, less confident investors bid adieu to AMC stock as they rotated out of riskier plays in response to the prospect of higher interest rates. And with economists warning the Russia-Ukraine war could lead to a U.S. recession, this once-deemed unsinkable meme play may be on the verge of a final big move lower.
AMC Stock Army No Longer In Fighting Shape
The fans of AMC Entertainment who refer to themselves as the “Ape Army” pride themselves on the epic battles they won against hedge funds, individual short-sellers, and the commentators who pointed out that the “Emperor has no clothes” (including when that was literally the case).
They may regale each other with war stories from 2021 on Reddit, but they are just that: stories. In 2022, the AMC stock army is no longer in fighting shape. Sure, “retail owns the float” is a factual statement. But that doesn’t mean everyone holding shares is willing to hold them until the bitter end. Plenty of these retail investors entered AMC stock more recently and are looking at mounting losses.
Chances are, they bought their shares from other retail investors who had the same thought before deciding to cut their losses and move on. These new retail shareholders will likely exit in a similar fashion, repeating the process.
Sure, the most vocal apes still believe there is a legion of individual shareholders behind them capable of beating the “smart money” at its own game by bidding AMC stock up to past price levels through the collective purchase of the stock. Yet, with the vast majority of current shareholders likely of the fair-weather variety, I anticipate they’ll run off the battlefield en masse at the next sign of trouble.
A Farewell to Meme Madness
The Russia-Ukraine war may just well be what brings an end to the meme madness in AMC stock, albeit in a roundabout way.
The conflict could result in an economic slowdown due to the West’s economic sanctions against Russia causing commodity prices to surge. Ahead of this, markets could again react negatively, resulting in a drop on par with those experienced in December and January.
When this panic sets in, the aforementioned fair-weather fans will quickly make their exit. As they exit, potential buyers will be looking more at fundamentals and less at Reddit threads.
In this case, investors will be looking to buy at a price more in line with the stock’s underlying value. Per the calculations presented in my previous article on AMC stock, at best, its underlying value is around $8.25 per share. That’s 47% below the current price.
Investors may not even be willing to pay that much for shares. An economic slowdown would call into question how quickly AMC can complete its post-pandemic recovery. And the next market maelstrom could lead to a sharp drop in shares, perhaps to levels seen before anyone had ever heard of a meme stock.
The Bottom Line on AMC Stock
AMC CEO Adam Aron has many gimmicks up his sleeve to improve AMC’s operating performance. Recently, that’s included allowing moviegoers to purchase their tickets using “meme coins,” as well as plans to have hot popcorn delivered to your home via Uber (NYSE:UBER).
While creative, these ideas don’t justify a $7.9 billion market capitalization, $18.7 billion enterprise value, or a bullish encore performance. It’s been one a hell of a show, but it’s time for AMC stock to exit the stage.
On the date of publication, Thomas Niel 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.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
