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entertainment group AMC Entertainment (NYSE: AMC) has been a roller coaster ride over the past few years. After a meteoric rise in 2021 fueled by the “meme stock” frenzy, the company's share price has fallen significantly. But with recent blockbusters and renewed enthusiasm for meme stocks, investors are wondering: Is AMC stock on the move again?
The business
The entertainment industry, hit hard by pandemic lockdowns and the dominance of streaming services, has shown tentative signs of recovery. Summer blockbusters and a surge of new releases in the wake of the pandemic have brought audiences back to the big screen, providing a much-needed boost to revenue.
However, financial health remains a major concern. The company racked up significant debt during the pandemic to stay afloat. While steps have been taken to reduce it through share offerings, the burden remains substantial. This debt limits the ability to invest in upgrades and new technologies, which could be crucial to attracting long-term customers in a competitive landscape.
Interestingly, a discounted cash flow calculation suggests the share price could be up to 56% undervalued. However, with such a drop from the peak, I can completely understand why the market would be hesitant to rely on any metric to make a decision.
Basically, the business is still not profitable. Since this is unlikely to change in the short term, the share price may see further declines in the future unless the events of 2021 repeat themselves.
The influence of memes.
The meme stock phenomenon of 2021, in which retail investors banded together to drive up stock prices, played an important role in AMC's story. While it provided a much-needed financial boost, it also caused high volatility and a disconnect between the stock price and the company's fundamentals. This volatility continues to make this a risky investment, as traditional metrics like the price-to-sales (P/S) ratio seem to matter less to some.
With Keith Gill, one of the key players of 2021 games stop Frenzy, now back in the public eye, meme stocks have seen tremendous rallies in recent days. Many are now down significantly, but volatility is certainly back on the menu.
The next move
As we learned in 2021, the next move of these stocks is almost impossible to predict. Fierce rallies may be ahead, but the declines can be just as aggressive. Clearly the business itself is in a difficult position, but the influence of online communities in moving the share price is something else entirely.
For me, I don't want to touch AMC stock. I vividly remember the frenzy and chaos of 2021, and while many investors will do well with a little luck, I don't want to fall into the trap of chasing a rally and potentially only seeing the fall.
