Why You Should Continue to Avoid AMC Stock

For a year now, exasperated short-sellers have thrown up their arms in frustration and analysts have screamed themselves blue in the face that shares of the Leawood, Kansas-based company are overvalued beyond all logic and the stock’s price is atunsustainable levels. Yet despite all the head shaking and grumbling, AMC$AMC Entertainment(AMC)$ stock continually defied expectations as retail traders executed multiple short squeezes and treated $AMC Entertainment(AMC)$ as a meme stock.

For a time, the price went above $70 a share in the process. AMC stock was able to constantly outperform and prove the Wall Street naysayers wrong. Until now. The steep sell-off begs the question: Where does AMC go from here?

Positive Signs

To be fair, AMC has had some positive news recently. First, it was reported that the California Public Employees’ Retirement System pension fund, which is the biggest in the U.S. with $470 billion in assets under management,quadrupled its investmentin AMC stock, buying 503,000 shares in recent months. The investment by the California pension fund is seen as a big vote of confidence in AMC stock. The purchase is especially positive as the California pension is tasked with managing the retirement funds of public employees and typically invests in conservative, reliable securities.

Second, AMC announced in early February that it hashired Ellen Copaken, an executive who previously worked at $Pepsi(PEP)$ Frito-Lay division as well as $Hostess Brands Inc(TWNK)$ to lead the growth of AMC’s concession business, specifically sales of the company’s popcorn. The hiring of Copaken is also seen as a vote of confidence in AMC and the future of the company’s more than 10,000 movie theater screens.

However, while encouraging, neither the investment by the California pension fund or the hiring of Ellen Copaken have been able to halt the slide in AMC stock. The good news has not been able to counter the company’s deteriorating finances.

Continued Losses

AMC reported fourth-quarter results after markets close on March 1.Revenue came in at $1.17 billion, versus analysts’ expectations for $1.16 billion. The adjusted loss per share was 11 cents, which was better than the 16-cent-per-share loss that analysts projected.

And the company reported it had 59.68 million customers, which is a huge improvement over the 8.09 million it had a year ago in the midst of the Covid-19 pandemic.

AMC has been helped by pent-up demand and robust ticket sales to blockbuster movies such as Spider-Man: No Way Home( which grossed $1.86 billionworldwide) that were released in December during the busy holiday period. However, the company is confronting the rise of streaming platforms and a fundamental change in the way films are distributed that took hold during the pandemic. Many movies are now forgoing theatrical releases and heading straight to streaming platforms while others are being released simultaneously in theaters and on streaming vehicles in what are being called “hybrid releases.”

The new approach upended the entire movie industry. $Walt Disney(DIS)$ was sued for releasing its Marvel film Black Windowin theaters and on its Disney+ streaming service at the same time, and Warner Bros. has also been sued for releasing the movie The Matrix Resurrections simultaneously intheaters and on HBO Max. Where the new approach ultimately ends up remains to be seen, but the ascent of streaming services over the past two years threatens the long-term prospects for AMC Entertainment and other movie theater operators who are seeing fewer releases land in their cinemas.

Keep Your Distance From AMC Stock

AMC stock is finally falling back to earth after a year of being kept aloft by retail traders who thumbed their noses at Wall Street and made AMC one of the most successful meme stocks. Now that the shares are falling with no bottom yet in sight, investors should keep their distance.

The long-term outlook for AMC’s movie theater business is uncertain at best. The rise of streaming services is one of the biggest threats the movie theater industry has ever faced. Given the negative sentiment and continued losses, now is not the time to go anywhere near this troubled company. AMC stock is not a buy.

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