I’m often a contrarian voice on stocks. But when it comes to AMC (NYSE:AMC) stock, I embrace what appears to be the view of most pundits and analysts.
Specifically, I agree that AMC’s shares have peaked and that they are headed much lower.
Indeed, with movie theater attendance still very low and unlikely to ever reach prior highs, AMC stock’s valuation still extremely elevated, and meme stocks obviously having lost their previous strength, the outlook of AMC’s shares is quite dismal.
CNBC reported that, as of the end of October 2021, box office sales still lagged nearly 70% behind 2019′s $11.4 billion take.
So despite the widespread proliferation of vaccinations in the U.S. and the fact that attendance at many indoor activities such as NFL games and casinos have come close to pre-pandemic levels, U.S. movie theater attendance remains way below its 2019 levels.
I think the reason for the continued weak theater attendance is due to a phenomenon that I outlined in my Oct. 1 column on AMC stock. In that article, I noted that AMC aces continued competition from streaming services. To further explain that point, I quoted BusinessBecause columnist Chloe Meley.
“People were already becoming homebodies before the pandemic forced everyone to stay inside,” she wrote. “At-home entertainment, spurred by an ever-expanding array of streaming services and increasingly sophisticated TV set-ups, removed the need to leave the house.”
In other words, the coronavirus pandemic only exacerbated theaters’ pre-existing attendance issues. Those issues were created by the huge library of movies being offered by streaming services.
Consequently, I’m not surprised by the fact that theater attendance remains far below 2019 levels, and I expect box office sales to remain quite anemic going forward. That, of course, does not bode well at all for AMC stock.
On the valuation front, AMC’s trailing price-sales ratio is a still-exorbitant seven. Given the company’s many challenges, that’s an unreasonably high price to pay.
The Meme Stocks Have Lost Their Mojo
Beginning in the summer, I predicted that meme stocks would weaken in September when the federal government’s stimulus measures for consumers started disappearing.
Around that time, the meme stocks, including AMC, Bed Bath and Beyond (NASDAQ:BBBY), and GameStop (NYSE:GME) stock, mostly stayed flat.
In the last few weeks, as it became apparent that the Fed would reduce its asset purchases relatively quickly, the meme stocks have dropped sharply.
For example, in the month that ended on Dec. 16, AMC stock fell 40% and GME stock sank 31%.
Potentially adding to the weakness of the meme stocks, in February Americans will probably have to start paying off their student loans again.
The Fed is going to quickly reduce its asset purchases and then likely start raising interest rates around March 2022. All of those developments will probably further pressure the meme names.
Also making me less confident in the stock’s outlook is the fact that the company’s CEO, Adam Aron, recently unloaded 312,500 shares of the stock for net proceeds of about $9.65 million.
After the transaction, he has less than 100,000 shares of AMC stock.
The Bottom Line on AMC Stock
Taken together, the weak theater attendance data, the stock’s high valuation, the general weakness of meme stocks and the CEO’s sale of over 300,000 shares indicate that AMC stock will most likely tumble much further over the long term.
Consequently, I continue to urge investors to sell the stock at its current levels.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.