- AMC stock has been a key beneficiary of the meme-trade phenomenon.
- However, the cineplex operator must face severe economic realities.
- It’s best left for speculators.
The story behind cineplex operator AMC Entertainment (NYSE:AMC) stock is largely one of extremes.
Prior to the pandemic, the box office struggled amid streaming content services and a pivot in how consumers absorb entertainment.
Then, the remarkable meme-trading phenomenon occurred, miraculously saving the underlying company from complete and utter despair.
However, as with any business venture, substance has to win out over emotions. While I and many other sympathize with the undergirding of how AMC stock became more a symbol than an investment, the fundamentals eventually have to make sense.
A Closer Look at AMC Stock
While there’s always a risk in presenting a less-than-optimistic case for investments that have been meme beneficiaries, I’ve got to discuss the pink elephant in the room. If AMC stock was due for a sizable run up, its insiders have a strange way of demonstrating their confidence.
The key executives, employees and stakeholders of AMC stock have been eager to get out of Dodge. According to data from Gurufocus.com, all the insider transactions this year have been sell orders.
Indeed, based on its website, it appears that May of 2019 was the last time any insider bought shares of AMC stock. Setting that aside, you’d expect that if the folks behind the memes are correct, the insiders should be buying loads of shares at these discounted prices.
They’re not, and actions speak louder than words.
In addition, I find management’s decision to acquire a precious metals miner bizarre. Sure, I get it. Skyrocketing inflation means that your money is theoretically safer in hard assets than paper promises, but AMC stock is a cineplex-based investment.
Say what you will, it’s an admission that the movie industry isn’t quite working out for AMC. That’s worrying.
Competitive Concerns May Hurt the Box Office
Much of the reason why shares are troublesome have nothing to do with the underlying company. It really comes down to the business.
People shouldn’t necessarily take comfort in that AMC is not completely in control of its destiny. As we’ve all known well before the Covid-19 pandemic, competitive concerns have been one of AMC’s biggest impediments. Those concerns just got heightened due to the inflation problem.
You see, with the purchasing power of the dollar declining rapidly, consumers must exercise discretion in their consumer discretionary purchases. Meaning, if a household ordinarily budgeted for both a night at the box office and dinner at a fancy restaurant, they may have to choose.
What’s worse, other entertainment options — most conspicuously the return of live sports — have normalized, imposing more competition on AMC stock. Combine that with declining purchasing power, AMC is looking rather fraught.
It’s no joke either. When you compare the year-over-year growth in average hourly earnings versus the year-over-year growth in the consumer price index, you’ll quickly recognize that unless the monetary equation changes dramatically, inflation (and the associated rise of costs of living) will make our so-called economic recovery unsustainable.
Think Logically With These Memes
As you’ll read below, I own shares of AMC stock so let me explain the contradiction. Because of the meme phenomenon, I was able to exit my previously upside position profitably, but I kept some in there in case the meme continued to deliver.
Well, it looks like it’s not delivering so in hindsight, I should have exited AMC completely. And that’s really the point. Whether you love memes or not, I think it’s time to think critically and logically about this “investment” class.
When you do, it’s possible that you’ll have a less-than-boisterous attitude toward the cineplex operator and its ilk.
On the date of publication, Josh Enomoto held a LONG position in AMC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.