Shares of AMC Entertainment (AMC -0.85%) are dramatically overvalued and poised for a brutal fall.
So says LightShed Partners analyst Rich Greenfield, who placed a sell rating on AMC's stock on Wednesday. He sees the struggling movie theater chain's share price plunging to $0.01. AMC currently trades near $10.50.
Yes, you read that correctly. Greenfield is warning AMC's shareholders that they could lose essentially all of their money.
Greenfield cautions that AMC might not survive the damage wrought by the coronavirus crisis. Although people will continue to go to the movies, he says lower attendance levels will continue to weigh heavily on AMC's profits. Thus, Greenfield argues that AMC's earnings will not support its current stock price.
Worse still, with AMC being forced to take on enormous amounts of debt to endure the pandemic, its interest payments will make it difficult for the company to survive over the long term. Greenfield, in turn, contends that AMC's future "is very much in doubt."
Should you sell your AMC shares?
Greenfield's arguments are valid. People are unlikely to rush back to crowded movie theaters even after the health crisis subsides. New coronavirus variants could make COVID-19 a constant threat, and many people will likely determine that going to a theater to see a movie they can watch just a few weeks later in the safety and comfort of their homes simply isn't worth the risk.
With AMC scheduled to release earnings after the market close today, investors will receive an update as to the company's current financial situation. Based on those figures, and the risks highlighted here, many shareholders may decide that selling their AMC stock is a prudent move.