Investors are always balancing risk and reward, but emotions can undermine even the best of plans. AMC Entertainment (AMC -9.11%) Stocks today need to take a step back and question why. In fact, there are many reasons why you shouldn’t. Here are some to test your investment thesis.
1. Roller coaster
Dealing with volatility is difficult for most investors. It leads to emotional duress and ultimately bad decision making. Shares of AMC Entertainment, one of the world’s largest cinema operators, climbed almost vertically in early 2021 and plummeted shortly thereafter, but are now up about 800%. The stock then surged again in late 2021, with him over 2,500% year-to-date.
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Since that point, the stock has been in a long downtrend, with violent ups and downs along the way. Now the stock is down more than 80% from its peak. This is a level of volatility that few investors can endure without any impact on their emotional well-being.
2. It’s a meme
what exactly is going on? The answer is very simple. Message board residents have decided (for a variety of reasons) that AMC is a fun stock to talk about and trade. In market terms, it’s a memetic stock. The problem is that meme stocks move in dramatic and unpredictable ways.
In other words, there is no way to predict which direction the AMC wind will blow next. If you value fact over fiction, you probably want to avoid all memestock.
3. Still struggling
The interesting thing is that AMC’s business is doing pretty badly. That’s been the case since the coronavirus pandemic first reared its ugly head in 2020. Considering how difficult it is to maintain social distancing in movie theaters, that’s not shocking.
But even in the most recent quarter, long after the most stringent government guidelines disappeared, the company lost $0.20 per share. This is an improvement from his $0.71 loss the year before, but still a loss.
Nonetheless, the stock is up more than 350% now since early 2020, despite business doing little better.
4. A competitor went bankrupt
Meanwhile, AMC’s most public rival, cine world group, recently filed for bankruptcy. Essentially, the awful industry dynamics were too much for the company to deal with.
This isn’t to suggest that AMC can’t withstand the high winds it faces, but based on its earnings, it’s not exactly thriving. Therefore, Cineworld’s choice to seek bankruptcy court protection should probably put AMC shareholders on notice, given the company’s extensive statements about its cinema business.
5. Not very shareholder friendly
Meanwhile, AMC’s management has made some interesting decisions recently. In the early days of the memestock trend, a large amount of inventory was sold. It was probably a good move and likely saved them from potential bankruptcy.
However, investors rejected the idea of further dilution as they tried to get back to where they were. Faced with that loss, management decided to spin off the preferred shares traded under the ticker. (Ape -9.26%), to our shareholders. But the move is likely to sell more of the preferred stock on the open market.
Then there is the March 2022 investment in a gold mining company. highcroft mining (HYMC -10.76%)What exactly does gold mining have to do with cinema?
It would be hard to argue against anyone suggesting that management is probably thinking of something other than shareholders now. It’s not the type of company most investors want to put their trust in.
risk vs reward
Movies are unlikely to go away, but the industry today is different than it was just a few years ago. Meanwhile, AMC’s stock price has been rocked by emotion alone as the company struggles and makes questionable business decisions.
AMC currently looks more like a gamble than an investment, but if that’s what you want, that’s fine. However, most long-term investors don’t want a casino-like rush when buying stocks. Even the most aggressive investor should think twice about AMC Entertainment.