Why AMC's Bull-Versus-Bear Battle Is One to Avoid

Motley Fool2022-03-24

KEY POINTSAMC is a meme stock with a lot of support from retail investors.However, rising interest rates could make the market less friendly toward speculative stocks like AMC.The company's recent ...

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Comments

SYB0303
2022-03-24
SYB0303
Seems like writer have nothing new to criticize the stock. When it’s categorize as meme stock, does investors really care about fundamentals?
huat8783
2022-03-24
huat8783
Like
Markh72
2022-03-24
Markh72
MMs and hedge funds drop it to where they want it even on good earnings and news, it'sbeen a play for the big boys, but not anymore, Motley Fool you you are very one sided and don't care about your one sided story lines
ONG
2022-03-24
ONG
Amazing is really good
BotakGuy
2022-03-24
BotakGuy
Ok
Road1Warrior
2022-03-24
Road1Warrior
i have visited and enjoy AMC cinema while growing up. Many movies and gathering at AMC. too bad that pademic r killing the business. I am not able to save it because i can only afford to invest in viable business at this point.

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Meme stocks can be wildly unpredictable, sometimes making significant price moves on little to no news.But stocks like AMC can be risky to try to trade around; shares have been down almost 40% since the beginning of the year. Before buying shares, banking on a rebound, consider these reasons to pass on AMC.The market environment has changedThe market is much different than in 2021 when the meme craze occurred. The Federal Reserve System, which is the central bank of the United States, has begun to increase the federal funds rate, the interest rate that commercial banks borrow at, to combat the rampant inflation taking place.Image Source: Getty Images.Higher interest rates tend to pressure stock valuations, and investors can begin flocking to \"safety\" in profitable companies with sound business fundamentals. This risk-off market could be bad for meme stocks like AMC and could help explain the stock's fall since the beginning of the year.Fundamentals remain weakAMC was on the ropes during the pandemic when lockdowns virtually shut down its theaters and put the company in danger of bankruptcy. The strong support from retail investors played arguably the most prominent role in keeping the business open. The company raised funds through debt and equity raises to survive.But now we are left with the aftermath, and there are serious concerns for the forward-looking investor. You can see in the chart below that AMC's enterprise value, which is the combined value of a stock's shares and debt (minus cash), is still higher than the years before COVID-19. In other words, the company's new debt and shares have inflated the stock's total valuation, despite the per-share price continuing to fall.AMC enterprise value. Data by YCharts.AMC isn't doing so well from an operating standpoint, either; the company burned more than $700 million in 2021. I should note that AMC also closed the year with almost $1.6 billion in cash, so it isn't likely to go out of business soon. However, the company will probably need to turn a profit to be a fruitful long-term holding for investors.The last time AMC had positive free cash flow was in 2019, when it generated just $61 million from $5.4 billion in revenue. Put another way, the company wasn't developing a lot of cash profit even before the pandemic.Questionable management movesAMC recently announced that it made a $28 million investment into Hycroft Mining, a gold and silver mine in Nevada. The stake gives AMC 22% ownership, with management describing the investment as an opportunity to benefit from helping a distressed business, much like AMC was a year ago.Hycroft Mining isn't in a position to generate meaningful short-term value for itself or AMC, having made layoffs after ceasing operations at its mine last November. On the one hand, the investment is a small fraction of AMC's balance sheet, which has up to $1.8 billion in liquidity if you include untapped credit lines.However, it might be fairer to question what business AMC has allocating capital to speculative assets like this. It's utterly unrelated to its own business, making it hard to accept that AMC would even know how to value an asset like this, let alone invest in it. That money probably could have been better spent, considering the theater operator is still not operating at a high level. Perhaps AMC could have purchased a stake in a streaming company, or an entertainment studio -- anything related to its core competence!Investor takeawayThe market doesn't seem as friendly to speculative investments anymore, and investors are putting more emphasis on fundamentals and profits than in 2021. AMC has been one of the faces of the meme stock craze, but it could get increasingly difficult to find support for a valuation that's still above when the company was much healthier.Share prices are ultimately a function of supply and demand for a stock in the short term, but fundamentals often tell the long-term story. Given AMC's continued struggles and head-scratching decision to allocate precious capital to a risky, unrelated investment, it might be best to stay away from AMC until more smoke clears from around its business. Investors can always revisit the stock if the company can show steady improvement over future quarters.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":637535953,"gmtCreate":1648131394967,"gmtModify":1676532892018,"author":{"id":"3576656611799755","authorId":"3576656611799755","name":"SYB0303","avatar":"https://static.tigerbbs.com/151f9661e12b2e263a192c37c63c016c","vip":1,"crmLevel":8,"crmLevelSwitch":0,"idStr":"3576656611799755","authorIdStr":"3576656611799755"},"htmlText":"Seems like writer have nothing new to criticize the stock. When it’s categorize as meme stock, does investors really care about fundamentals?&nbsp;","listText":"Seems like writer have nothing new to criticize the stock. When it’s categorize as meme stock, does investors really care about fundamentals?&nbsp;","text":"Seems like writer have nothing new to criticize the stock. When it’s categorize as meme stock, does investors really care about fundamentals?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/637535953","repostId":2221446017,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":9037268217,"gmtCreate":1648119527135,"gmtModify":1676534306238,"author":{"id":"4091087270144060","authorId":"4091087270144060","name":"huat8783","avatar":"https://static.tigerbbs.com/cdbc7fc19af98870fdc173b23ab4de90","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"4091087270144060","authorIdStr":"4091087270144060"},"htmlText":"Like","listText":"Like","text":"Like","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9037268217","repostId":2221446017,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9037216051,"gmtCreate":1648112442885,"gmtModify":1676534305721,"author":{"id":"3573518618619259","authorId":"3573518618619259","name":"Markh72","avatar":"https://community-static.tradeup.com/news/48640d619fbc005d12f6239d6a12b1aa","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"3573518618619259","authorIdStr":"3573518618619259"},"htmlText":"MMs and hedge funds drop it to where they want it even on good earnings and news, it'sbeen a play for the big boys, but not anymore, Motley Fool you you are very one sided and don't care about your one sided story lines","listText":"MMs and hedge funds drop it to where they want it even on good earnings and news, it'sbeen a play for the big boys, but not anymore, Motley Fool you you are very one sided and don't care about your one sided story lines","text":"MMs and hedge funds drop it to where they want it even on good earnings and news, it'sbeen a play for the big boys, but not anymore, Motley Fool you you are very one sided and don't care about your one sided story lines","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":6,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9037216051","repostId":2221446017,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9037291580,"gmtCreate":1648107053158,"gmtModify":1676534305225,"author":{"id":"3567117557388918","authorId":"3567117557388918","name":"ONG","avatar":"https://static.tigerbbs.com/ee3b5ff3c81fec2ba57a0f0e3cc3d94c","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"3567117557388918","authorIdStr":"3567117557388918"},"htmlText":"Amazing is really good","listText":"Amazing is really good","text":"Amazing is really good","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9037291580","repostId":2221446017,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9037677002,"gmtCreate":1648103888960,"gmtModify":1676534304682,"author":{"id":"3557831813182222","authorId":"3557831813182222","name":"BotakGuy","avatar":"https://community-static.tradeup.com/news/022cac584c2e108f4c8bfef1e94aa79d","vip":1,"hat":"https://static.tigerbbs.com/f84859c65fc2d7681e28f6b8e9b0535a","crmLevel":6,"crmLevelSwitch":1,"idStr":"3557831813182222","authorIdStr":"3557831813182222"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9037677002","repostId":2221446017,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9037676866,"gmtCreate":1648103044487,"gmtModify":1676534304608,"author":{"id":"4098084219326670","authorId":"4098084219326670","name":"Road1Warrior","avatar":"https://community-static.tradeup.com/news/444bc0aeceab5292f15cd24cd37ab6c3","vip":1,"hat":"https://static.tigerbbs.com/b073a07f77dbe6b3bec6b12311fde6bd","crmLevel":4,"crmLevelSwitch":1,"idStr":"4098084219326670","authorIdStr":"4098084219326670"},"htmlText":"i have visited and enjoy AMC cinema while growing up.&nbsp; Many movies and gathering at AMC.&nbsp; too bad that pademic r killing the business.&nbsp; I am not able to save it because i can only afford to invest in viable business at this point.","listText":"i have visited and enjoy AMC cinema while growing up.&nbsp; Many movies and gathering at AMC.&nbsp; too bad that pademic r killing the business.&nbsp; I am not able to save it because i can only afford to invest in viable business at this point.","text":"i have visited and enjoy AMC cinema while growing up. Many movies and gathering at AMC. too bad that pademic r killing the business. I am not able to save it because i can only afford to invest in viable business at this point.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9037676866","repostId":2221446017,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":229,"commentSize":65,"repostSize":0,"favoriteSize":1,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2221446017"}