Investor Warning: Why AMC Is a Meme Stock to Avoid at All Costs

Stocks to sell

Don’t be fooled by the return of meme stocks. It’s curtains for AMC Entertainment (NYSE:AMC) stock. In mid-May, AMC jumped 135% higher in less than a week as investor interest in meme stocks was rekindled. However, just as quickly as AMC’s share price rose it fell again.

Once again, investors who took the bait got burned. Year-to-date, AMC stock is down 25%. Over the last 12 months, the company’s share price has plunged 87%. Trading at less than $5 per share, AMC is now a penny stock and one that should be avoided at all costs.

A Short-lived Bounce

The rally seen in AMC stock during May was prompted by the return of investor Keith Gill who goes by the name “Roaring Kitty” on social media.

Gill orchestrated a short-squeeze on the stock of video game retailer GameStop (NYSE:GME) in 2021 and sparked that year’s meme stock craze. Gill, who had not posted anything to social media in three years, suddenly returned this May to once again promote GME stock and his position in it.

While Gill did not focus at all on AMC Entertainment, his return lit a fuse under all the former meme stocks. AMC stock rose in sympathy with GameStop, though only briefly.

AMC stock spiked in mid-May but quickly fell due to poor financial results, heavy debt burden, and pandemic struggles.

Bad Finances and Dilution

No sooner did AMC’s stock pop in May than the company announced plans to sell 23.3 million of additional shares, raising cash but diluting the holdings of existing shareholders in the process.

News of the dilution sent AMC stock down 22%. It was the latest example of how the company continues to slap its shareholders in the face and is another reason why investors should avoid AMC stock.

Beyond the share dilution, AMC also continues to struggle financially and labor under an enormous debt burden. The company currently has $4.5 billion in debt and about $600 million of cash on hand.

Analysts say the current debt situation is unsustainable and could lead to a bankruptcy filing at AMC in the next few years. For this year’s first quarter, AMC reported a loss of 78 cents per share, which was one cent better than a loss of 79 cents expected on Wall Street.

Sell AMC Stock

By nearly every metric, AMC Entertainment is a bad investment. The company is unprofitable, heavily indebted, running out of cash, and may file for bankruptcy in the not-too-distant future.

Its share price has declined nearly 90% in the last year and is trading as a penny stock. The company continues to dilute existing shareholders every change it gets.

The only thing the company has going for it is that its shares are viewed as a troubled meme stock. Anyway you look at it, AMC stock is not a buy.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

Articles You May Like

3 Overvalued Stocks Teetering on the Brink of Collapse
3 Aerospace Stocks to Buy Amid the Aviation-Safety Boom
3 Hydrogen Stocks That Could Grow Your Wealth
Roaring Kitty vs. Risks: Why Investors Should Avoid GameStop Stock Now
3 Hydrogen Stocks That Could Be Multibaggers in the Making: July Edition