For AMC (NYSE:AMC) stock, the easing of Americans’ fears about the pandemic, along with the approaching end of the outbreak, is certainly very positive news.
Nonetheless, the movie theater owner is facing multiple other tough problems.
First of all, it faces continued competition from streaming services. Second, AMC has significant debt and a gargantuan valuation. Finally, there’s the erosion of the power of meme-stock buyers to consider.
In past columns, I’ve noted that many Americans have become used to and happy with watching movies on streaming services, rather than going to theaters.
In a recent article, BusinessBecause columnist Chloe Meley explained that phenomenon in very colorful, down-to-Earth terms.
“People were already becoming homebodies before the pandemic forced everyone to stay inside,” she wrote. “At-home entertainment, spurred by an ever-expanding array of streaming services and increasingly sophisticated TV set-ups, removed the need to leave the house.”
Recent history indicates that many Americans will go to AMC’s movie theaters to see popular films with the fear of Covid-19 easing and the lockdowns mostly over. That is, of course, if the movies are not simultaneously available on streaming services.
For evidence of that statement, look no further than the attendance at AMC’s theaters during the opening weekend of Disney’s (NYSE:DIS) Shang-Chi and the Legend of the Ten Rings.
That highly anticipated movie opened in theaters on Labor Day weekend but was not available on any streaming channels. As a result, AMC’s attendance over the weekend exceeded the levels that the company reported for 2019’s Labor Day weekend.
That was the first weekend during which the chain’s attendance exceeded the corresponding weekend during 2019 since the pandemic began.
But unfortunately for AMC, many if not most movies look set to hit streaming channels either at the same time or before they show in theaters.
For example, Sony (OTC:SNEJF) intends to give its upcoming Hotel Transylvania 4 flick directly to Amazon (NASDAQ:AMZN), and MGM intends to show its The Addams Family 2 movie in theaters and on pay-per-view simultaneously.
The Weakening of Meme Stocks and High Debt Levels
As I’ve pointed out in past columns, the power of meme-stock buyers has greatly ebbed in recent weeks as federal stimulus dollars have dried up and the rent moratorium has come to an end.
Long gone are the days when meme-stock investors could double or triple stock prices within a few days.
In fact, in recent weeks, most meme names, including AMC stock, have lost a significant amount of ground. AMC tumbled more than 25% between Sept. 13 and Sept. 28. GameStop’s (NYSE:GME) shares fell nearly 20%, and SOS (NYSE:SOS) tumbled over 25%during that same general timeframe.
In that environment, AMC’s shares look destined to fall much further.
High debt levels are also likely to weigh on AMC stock. Despite raising a lot of funds by selling AMC shares during the meme-stock frenzy, AMC’s net debt stood at over $9.25 billion as of the end of last quarter. That’s close to double its 2019 top line of $5.47 billion.
With AMC looking poised to print red ink for the foreseeable future and interest rates looking well-positioned to climb over the next year or two, the company’s only recourses over the long-term may be either to sell many more shares of its stock or declare bankruptcy. Neither of those alternatives would have a positive impact on its stock price.
The Bottom Line on AMC Stock
Despite all of AMC’s problems, its shares are changing hands for over four times analysts’ average 2021 sales estimate for the company. That’s a very rich valuation for an unprofitable company whose business is being steadily eroded by technology.
Consequently, investors should definitely unload AMC stock.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.