AMC Entertainment (NYSE:AMC) stock rose only 20% during June’s meme-stock rally, suggesting limited future benefits from this trend.
The company issued a negative outlook for Q2, expecting weaker performance because of fewer film releases from strikes and ongoing structural issues in the movie theater industry. In Q1, U.S. data showed only 30.5 million attendance viewers, and revenue declined 0.3%.
Moreover, the company has unchanged fundamentals, with over $4.6 billion in debt. With $2.8 billion due soon and the rising dominance of streaming services, AMC’s financial outlook remains bleak.
A disappointing box office forecast and ongoing need for equity sales to cover operational costs suggested a troubling future, urging investors to avoid AMC.
Here are a few things to consider when it comes to the bear case around this high-profile meme stock.
The Bulls Say Otherwise
AMC Entertainment shares have roughly over the past three months, far outperforming the 3.6% rise in the leisure industry. The company outpaced key competitors because of rising attendance, diverse film options, and movie-themed merchandise.
Additionally, strong consumer spending on premium formats and innovative food and beverage offerings have contributed to its success.
Despite Hollywood strikes affecting production, AMC has showed impressive resilience, exceeding expectations. From June 13-16, 2024, AMC reported record attendance and admissions revenue, with over one million visitors in the U.S. alone.
This weekend marked AMC’s highest attendance for 2024, totaling about 3.8 million. The success was driven by popular films like Inside Out 2 and Bad Boys: Ride Or Die.
In July, AMC continued its success with over 4 million moviegoers during the extended July 4 holiday weekend, totaling 4.2 million attendees from July 3 to July 7. The strong turnout was driven by a diverse film lineup, particularly Despicable Me 4.
With a new launched a new line of themed merchandise, like collectible popcorn buckets, it has perceived positive feedback. It has become the highest-grossing merchandise program of the year.
Why AMC’s Recent Surge Will Likely Die Down
AMC Entertainment achieved notable success with films, allowing the company to maintain momentum. That said, future success isn’t guaranteed.
In mid-May, AMC wisely capitalized on the meme-stock rally by conducting a significant share sale, though this raised dilution concerns. Moreover, AMC is reliant on meme-stock rallies, making it unsustainable.
Adam Aron, CEO of AMC, thinks bankruptcy is unlikely despite the downturns. However, the company has high debt, raising restructuring risks. Despite recent gains, AMC’s future remains uncertain and could lead to more losses.
AMC Entertainment faced ongoing cash burn and significant debt, raising concerns about its financial stability. Despite potential blockbuster releases, timely debt obligations remained a challenge, leading to personal sell rating for the stock.
AMC Remains a Hard Sell For Me
AMC’s theater closures reduced lease costs but decreased revenue, frustrating lenders. With declining sales since 2002, finding additional revenue sources has become difficult, complicating the company’s debt restructuring talks.
Retail investor support boosted share prices, but fundamentals indicated it was time to sell. AMC’s core business struggled, and ongoing equity raises risked diluting existing shareholders.
It’s my view that these fundamental forces, in combination with long-term secular headwinds tied to the rise in streaming services and at-home entertainment options, are likely to lead to a slow and steady decline toward zero.
AMC is a stock that I think isn’t worth betting on. It’s too volatile. Those who own this stock may not want to be the ones holding the bag at the end of the day.
On the date of publication, Chris MacDonald did not hold (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.