3 Reasons to Avoid AMC Stock and 1 Rival to Buy Instead

AMC Entertainment's stock, despite a meme-driven surge in 2021, continues to decline, down 20% year-to-date, as the company struggles to recover from pre-pandemic levels with sales down 17% from 2019 and a shrinking theater network; the article argues against a significant recovery due to diminished social media interest and ongoing stock dilution to raise capital, while suggesting Netflix as a more promising investment in the filmed entertainment industry.

Analysis

AMC Entertainment Holdings (AMC) continues to navigate severe financial and operational distress, evidenced by a 20% year-to-date stock decline, which follows precipitous drops of 76%, 82%, and 35% in the three prior years. The company's struggles are not recent; its business was challenged even before the COVID-19 pandemic, with the stock having fallen 53% in the two years leading up to 2019. Currently, AMC's trailing sales are 17% lower than in fiscal year 2019, and it has consistently reported negative cash flow over the past five years. Operationally, its theatre network has contracted, with approximately 900 theaters and 10,000 screens, about 10% below its 2019 count. The extraordinary 1,180% stock surge in 2021 to $339 per share was a meme-stock phenomenon, detached from underlying business performance, and is unlikely to recur as online promotion has subsided. A critical factor for investors is AMC's ongoing and substantial share dilution strategy to fund operations; the number of outstanding shares has increased from 23.5 million at the end of 2019 to 433 million, significantly impacting per-share value. In contrast, Netflix (NFLX) is presented as a more robust investment within the entertainment sector, demonstrating resilience and strategic adaptability. Despite facing investor concerns at various points, such as in 2022 regarding its ad-supported tier or in 2018 over content expenditure, Netflix has consistently pivoted to drive profitable growth, leading to significant long-term shareholder returns (e.g., a 54% return for those who invested three years ago). Although Netflix trades at elevated multiples—58 times trailing earnings and 13 times sales—its history of innovation and market leadership positions it as a stark contrast to AMC's narrative of decline.

Key Decisions for Investors

• Given AMC Entertainment's persistent negative cash flow, significant share dilution from 23.5 million to 433 million shares since late 2019, a 10% contraction in its screen network, and sales figures still 17% below 2019 levels, investors should approach the stock with extreme caution due to its challenging fundamental outlook.
• Investment theses should not be based on the potential for AMC to replicate its 2021 meme-stock rally, as the speculative fervor has diminished and the company's underlying financial health has not improved.
• For investors seeking exposure to the filmed entertainment sector, Netflix (NFLX), despite its high valuation at 58 times trailing earnings and 13 times sales, offers a track record of strategic pivots and growth, though its current premium pricing warrants careful consideration of entry points.
• The fact that AMC's stock remains heavily shorted, even after a price decline exceeding 99% from its peak, indicates significant ongoing market skepticism regarding the company's recovery prospects and long-term viability.