Currently, AMC Entertainment Holdings (NYSE:AMC) and BlackBerry (NYSE:BB) are two of the most widely held stocks on Robinhood. Both have also garnered a fair amount of support on Reddit, as individual investors have banded together to drive these meme stocks higher.

To that end, shares of AMC and BlackBerry are up 2,230% and 115% this year, crushing the market in both cases. But past gains and popularity aren't good reasons to buy a stock, at least not by themselves. So let's take a closer look at both companies.

AMC Entertainment

AMC is the largest theater operator in the world, with screens in 14 different countries. Prior to the pandemic, it was the industry leader in Europe and the U.S., including key markets like New York, Los Angeles, and Chicago.

Person reading newspaper and other documents.

Image source: Getty Images.

Unfortunately, the pandemic hit AMC hard, and its business proved much less resilient than rivals like Netflix. Last year, attendance dropped 79% and revenue plummeted 77%.

By the first quarter of 2021, AMC had reopened 30% of international theaters and 67% of domestic theaters, but its financial performance actually got worse. Attendance plunged 89% and revenue fell 84% in Q1.

Naturally, many investors point to AMC's pre-pandemic performance as justification for the stock's popularity. And it's true that AMC had a relatively strong track record through 2019.

Metric

2014

2019

CAGR

Revenue

$2.7 billion

$5.4 billion

15%

Free cash flow

$26.7 million

$61.0 million

18%

Data source: AMC SEC Filings. CAGR = compound annual growth rate.

However, there's still a problem. At the end of 2019, AMC stock traded at 0.15 times sales; it currently trades at 24.6 times sales -- a 16,300% increase in valuation. Of course, investors may attribute that spike to the sharp decline in revenue over the past year, a decline that is theoretically temporary. But that doesn't justify its price-to-sales multiple.

Let's assume AMC's fundamental value hasn't changed during the pandemic. At its current market cap of $29 billion, AMC would need to generate $193 billion in annual revenue to reach its pre-pandemic price-to-sales multiple. That's more money than Microsoft made over the last year.

Put bluntly, this stock is no longer tethered to reality, and I wouldn't go anywhere near it.

BlackBerry

Once upon a time, BlackBerry was known as Research In Motion (RIM). In 1999, RIM introduced the BlackBerry 850 pager, and one year later, it developed the world's first smartphone. But this golden period was short-lived, and RIM faded from relevance after Apple launched the first iPhone in 2007.

In 2013, RIM changed its name to BlackBerry, shifting its focus away from hardware. Today, that transformation is virtually complete, and BlackBerry generates revenue through software and services.

Person pressing digital padlock connected to device symbols (tablets, servers, laptops).

Image source: Getty Images.

For instance, BlackBerry Spark is the company's core product. It combines a suite of endpoint security software with unified endpoint management (UEM) solutions, delivering an AI-powered platform that helps clients manage and protect devices (i.e., desktops, mobile), applications, identity, and data.

Notably, the company faces a list of fierce competitors. In the UEM market, research firm Gartner ranks Microsoft, VMware, and International Business Machines (IBM) ahead of BlackBerry in terms of ability to execute and completeness of vision. But of the three, Microsoft is the biggest obstacle.

That's because Microsoft 365 is the world's most popular software of any kind, and the company's UEM solution (Microsoft EMS) is included in the 365 enterprise subscription bundle. In other words, many clients already have access to a better product, so why pay for BlackBerry?

BlackBerry's endpoint protection software also scores poorly compared to products like Microsoft Defender and CrowdStrike Holdings' Falcon. In fact, BlackBerry's platform doesn't rank in the top 10, according to Gartner.

Faced with these competitive headwinds, BlackBerry's financial performance has deteriorated over the long term. The company is actually worse off today than it was five years ago.

Metric

2016

2021

CAGR

Gross profit

$941 million

$643 million

(7%)

Free cash flow

$155 million

$38 million

(25%)

Data source: BlackBerry SEC Filings.

Looking ahead, I expect little to change. Cybersecurity should become increasingly competitive, and I think BlackBerry will continue to struggle. That's why investors should pass on this stock, at least right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.