What happened

The short squeeze play that had lifted stocks like AMC Entertainment Holdings (AMC -10.08%) higher continued to unravel today as several WallStreetBets stocks were falling, including GameStop and Express

The only piece of news out on AMC was a note from Citigroup, saying that while the company has reduced its bankruptcy risk, it's still a stock to avoid. Nonetheless, the main driver of today's sell-off seemed to be the profit taking after last week's spike.

As of noon EST the stock was down 12.9%.

The entrance to an AMC multiplex.

Image source: AMC Entertainment.

So what

AMC shares soared last week on a short squeeze and a wave of buying after the stock was promoted alongside GameStop on Reddit's WallStreetBets message board. It now seems like winners are taking profits after pushing the stock up as much as 400% in just three sessions last week as the stock has remained volatile since then with an extraordinary number of shares changing hands. Additionally, short interest in the stock has fallen in the last week, making another short squeeze unlikely.

The note from Citigroup was a reminder that this is still a fundamentally broken business, especially as it continues to burn cash during the pandemic. Analyst Jason Bazinet credited AMC with "dramatically reducing the risk of bankruptcy" after shoring up its liquidity through debt and equity offerings, but still rates the stock a sell and gave it a $2 price target, reflecting 75% downside. He also said the stock was overvalued in all the scenarios he tested.

Now what

Despite today's pullback, AMC stock is still more than triple its price at the beginning of the year. Though CEO Adam Aron said that bankruptcy was now "off the table" with the recent injection of liquidity, the underlying business faces a number of serious headwinds even after the pandemic is over. Given that reality, the stock is likely to continue drifting lower in the coming weeks.