The tug-of-war between Wall Street and the investors that frequent the WallStreetBets subreddit has spilled over into a number of highly questionable stocks. AMC Entertainment Holdings (AMC 7.84%) is one of the companies that was caught in the spotlight. Yet given its business prospects and the challenges that remain, the stock probably still has further to fall.
On this video clip from Fool Live, recorded on Jan. 27, "The Wrap" host Jason Hall and Fool.com contributor Danny Vena discuss the future of AMC and why current shareholders might be left holding the bag.
Jason Hall: Let's talk about exactly what's happening. When does it end? How does it end? Regulatory implications? Let's see here, Danny, I'm going to let you start off. Actually, I think your experience, and you talked about it before, this is a company you bought and you've called it a mistake to have bought and then you sold. They may be pretty easy to have some hindsight bias creep in right now. Share your experience here.
Danny Vena: I have been an AMC shareholder or had been an AMC shareholder for years and years. I know it's going back more than five years and probably closer to 10 years. I had held shares in AMC Theaters. The problem with AMC Theaters is that the company is in a long-term secular decline. Not just AMC theaters, but also the movie theater industry in general. I'm not saying it's going to go away anytime soon.
But if you look at the number of ticket sales going back from the year 2000 to now, that number has gradually and consistently declined. Now part of that has to do with the advent of streaming. Part of it has to do with the fact that people have so many other things that occupy their time right now. There wasn't a lot of social media available in 2000. You weren't carrying around a computer in your pocket in the form of a cellphone back in 2000. There are a lot more things competing for people's time.
I got looking at the secular trends. I got looking at AMC's massive, massive debt load and just came to the conclusion that if you look at its revenue, its revenue is creeping up, creeping up, but its net income was creeping down, creeping down. It was getting worse and worse year after year after year. To me that's the sign of a company that is in trouble. Eventually that's going to come home to roost. If you are a stockholder in a company that's in that situation, it's not going to be good over the long term and that's how we like to invest is long term.
In November of 2020, I sold out of all of my AMC shares. Of course, you know, I was a little shocked today when I saw that the stock was up. Some ridiculous amount, 200% or something based on the fact that somebody was using the #SaveAMC or something along those lines. It had become the latest favorite of WallStreetBets subreddit and that's not an investing thesis to me.
The stock moves and the quality of the company are not necessarily correlated over the short term -- over the long term, they absolutely are. While it would have been nice if I could have sold my AMC shares 300% higher or 200% higher than where I sold them. Honestly, when I invest, I invest for a certain degree of certainty over the long term. I didn't have that with AMC. I sold those shares and it was the right move, regardless of what the stock price is today.
Hall: Yeah, I think that's a key. There is a big takeaway I wanted to have from that Danny, that I really want to share. Number one, the business-focused mindset, understand the business, understand the trends, and then make a decision about whether it makes sense to own it. The other thing is tracking and remembering why you make the decisions that you do, whether it's a journal, whether it's Brian's wonderful portfolio tracker spreadsheet, that has the little cells where you can put in little notes to help you keep track of why you did what you did. It can make a huge, huge difference and keep you from falling in the hindsight bias.
Bottom line is there's no way anybody including Danny, who I think can see the future in many ways, could have seen the future of what's happening with AMC now. Anymore than somebody could have foreseen a global viral pandemic shutting down most of the global economy in six weeks will be about a full year ago. Sometimes the things are unknowable and you move on.