“Meme mania” has long since passed for AMC Entertainment, which has fallen over 99% from its 2021 highs, and more than 35% this year alone.
Despite being far cheaper today, the stock is richly priced when using fundamentals-based valuation metrics.
With cheaper alternatives out there for investors bullish on a recovery in the movie theater industry, don’t give your hopes up on AMC Entertainment.
Nearly five years ago, AMC Entertainment (NYSE: AMC) was not just one of the top meme stocks. It was one of the “meme kings,” alongside GameStop (NYSE: GME). During the initial 2021 wave of meme stock mania, shares in both companies surged to record prices, a rally fueled almost entirely by speculation and hype.
Although the trend peaked not too long after it started, shares in both companies managed to hold on to a fair amount of their respective meme gains for quite some time. In fact, GameStop — trading in the low $20s today — is still technically up from its pre-trend level.
Unfortunately, it hasn’t been the same story for AMC. Shares in the movie theater chain are down over 99% from their meme highs, and down over 35% just this year alone. Worse yet, while seemingly a bargain today, much suggests AMC still trades at an inflated valuation and could be vulnerable to further price declines.
In early 2021, AMC was in bad shape. Like other movie theater chains, the pandemic had a severe impact on its business. Burning through cash put the company at risk of bankruptcy. Hence, many hedge funds bet heavily against it by shorting the stock.
However, after their success coordinating an epic short squeeze with GameStop, many of the same retail traders piled into AMC, attempting to pull off the same trick. At first, this was successful. From January to June 2021, AMC surged from a split-adjusted $20 per share, to well over $500 per share.
Yet as a result of this huge surge in price, AMC began selling newly issued shares to raise money. While this brought in much-needed cash, it also led to heavy share dilution. Add in AMC’s struggles to return to pre-COVID levels of revenue and profitability, and it’s no surprise that meme mania faded, and the stock has since experienced a steady drop.
At a little over $2.50 per share, AMC Entertainment may seem dirt cheap. But don’t mistake a low stock price for a low valuation. AMC has yet to return to profitability under generally accepted accounting principles (GAAP). But it is profitable on the basis of earnings before interest, taxes, depreciation, and amortization (EBITDA), so we can value it using the enterprise-value-to-EBITDA metric (EV/EBITDA).
