For many years, AMC stock was facing downwards pressure from deteriorating fundamentals, loss of investor confidence, and short-sellers. Then, after $GME stock’s massive run-up, retail investors began looking for the next opportunity, which was AMC.

AMC stock ran up to a high of $72.62 per share following the retail-fueled hype around the stock, which was driven mainly by recreating what had been done with GME. After this monumental rally, shares began plummeting as investors sold the stock rapidly.

Now, AMC stock sits over 60% down from all-time highs as the stock has continued heading lower. Investors shouldn’t be surprised to see the movie theatre company’s shares continue to trade downwards in 2022 as there is a movement away from speculative bets on unprofitable companies.

Fundamentals

Despite diminishing fundamentals, AMC Entertainment managed to regain ground on third quarterly revenues, bringing in over $763 million, representing a year-over-year increase of over 530%.

While that year-over-year increase is impressive, it shouldn’t be forgotten this is in comparison to 2020’s terrible year for theatres. Even if revenues are annualized using the third-quarter figures, it doesn’t live up to revenues in full-year revenues in 2019.

However, earnings were still significantly negative, over $224 million, even despite improving substantially. This is due to audiences moving from movie theatres to at-home streaming services such as Netflix (NFLX) and Disney+ (DIS), which have taken away massive amounts of customers.

AMC Entertainment does have its own streaming service, AMC+, but it doesn’t have nearly the amount of content that Netflix and Disney+ contain. Although, if AMC were to expand upon this service, it would be a great segment as it’s a subscription-based revenue stream.

Moreover, AMC stock is still quite expensive from a valuation perspective as it’s unprofitable and has a price-to-sales ratio of 10.3. Ideally, this should be 3 or lower as movie theatres are within an industry that is being heavily disrupted by streaming.

Intense Competition

As mentioned previously in the fundamentals section, AMC Entertainment faces incredible amounts of risks from tech-driven industry competitors.

One of the main disadvantages of a physical theatre is that showtimes, seating, and location can vary depending on the theatre. This makes it incredibly inconvenient for consumers who would much rather stream their favorite movies or shows from the comfort of their own homes.

Disney, Netflix, and others could easily release movies on their streaming services first and advertise them for free on the given platform, effectively eliminating the role of a walk-in movie theatre. This isn’t that far from reality. After all, profit margins could be much higher for most studios since advertising could be heavily reduced.

It becomes very clear why investors should stay away from the stock for now and possibly in the future if fundamentals fail to improve. There are simply too many competitors that are well above AMC Entertainment with consistent subscription-based revenue, fast-growing selections of movies and shows, and much more. That sort of infrastructure is hard to build up over time, even with immense capital.

Conclusion

As investors can observe, AMC stock has plummeted since all-time highs, resulting in a domino effect of selling. The fundamentals aren’t present, thus making the stock unable to stabilize, but instead, continue trending downwards.

Even despite recent quarter revenues surging, the overall investor sentiment seems to be negative, since the valuation is far too steep. Adding to this equation, the competition in the entertainment industry is intense, especially now that on-demand streaming services have continued to take away market share from traditional walk-in theatres.

Despite the many angles to approach the possibility of buying a stock, $AMC fails on every approach. Valuation, competition, and momentum seem to be crushing AMC Entertainment’s potential to make a long-lasting name for itself. They do have the potential to get the business out into more venturous opportunities, but we aren’t seeing it, especially on the balance sheet.

Overall, it may be best for investors to sit on the sidelines, observing AMC Entertainment’s business direction before considering acquiring shares or making a trade. There will likely be small swings along the way, as the market normally does, which could be used as an opportunity for short-term investors. Although, the risk is far too great with the downwards momentum and stretched fundamentals.

Either way, investors should steer clear from AMC stock in the short-term and continue to in the long term if fundamentals do not improve.