AMC Entertainment's (AMC -5.41%) performance in 2021 so far has been nothing short of remarkable, despite there being little about the underlying business to justify such a dramatic move higher. In this Fool Live video clip, recorded on Oct. 4, contributors Matt Frankel, Rachel Warren, and Jason Hall discuss why AMC has rallied, the positive developments with the business itself (there are a few), and where the stock could go from here. 

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Matt Frankel: But real quick, and let me give you the rundown of AMC because it's not an entirely terrible story, to be fair. I would actually give their management a pretty high grade in how they've managed the past year or so.

Jason Hall: 100%.

Frankel: AMC, we all know what they do. I'm not going to waste time telling everyone what AMC does, they're the movie theater operator. They were not in a good place when the pandemic started. Obviously, movie theaters closed at the beginning of the pandemic, they stayed closed for a long time. Theaters are just now starting to ramp up their in-theater release schedules. AMC was drowning in debt, to put it mildly, at the start of the pandemic, and their stock was, I believe $2 a share at one point. AMC is up 1,670% this year. I'm guessing they're the best performer of any company we're talking about.

Hall: That's a great 20-year return in nine, 10 months.

Frankel: Why have they done so well? It'd be easy if you could just say they're a meme stock and move on. But AMC has attracted the attention of a group of retail investors. Because of that, their stock price is going up. At first, you could attribute it to a short squeeze. AMC really took advantage of the situation and started raising capital at the new higher stock price by selling more shares. They've raised a total of about $2 billion since the pandemic started, about $1.25 billion in the second quarter alone. They have about $2 billion worth of cash on their balance sheet right now.

They're starting to put some of that money to work in reducing debt, which is their biggest problem. They just announced they're redeeming $35 million of their highest-interest debt. All of that debt has an interest rate of above 15%, by the way, just to let you know how much of a drag interest is on this company. They started redeeming that, they want to improve their theaters, acquire some more distressed theaters from competitors in the current environment.

I give their CEO a big pat on the back, but they really, I don't want to say justify their valuation. I'm not sure that could even happen. To put it in perspective, AMC's market cap is over $19 billion right now. The highest they ever got to before the pandemic in the glory days of the movie business was $4 billion. They are trading at more than roughly five times their highest pre-pandemic valuation. That valuation is really their big competitive advantage if shareholders will let it be.

If they could just sell $5 billion worth of shares and extinguished their debt right now, I would be having probably a different conversation. They might have been my sixth-ranked stock instead of my seventh. But shareholders have shut down the CEO's ability to sell any more shares at this point, which I think is ludicrous. I think that valuation is the biggest competitive advantage they have going forward. Not that I really need to put words in your mouth or anything, but why did you guys like this No. 7 [out of seven stocks that have doubled or more this year]?

Hall: I'm going to just go real quick here. Forgive me, Rachel, for just jumping in because I have to share this chart.

Rachel Warren: No, it's fine.

Hall: It's not just market cap, it's enterprise value. If somebody wanted to buy the company, you're going to assume the debt, too. You're not just going to buy the company, you have to take on that debt. Again, this is looking out five years. This is 10 years. This is an incredible valuation. The most important thing to me is to paraphrase one thing that Peter Lynch said: "You can own the best company in a mediocre industry and you still own a mediocre business." That to me sums up entirely AMC. It is a mediocre industry right now.

Warren: Yeah, I agree. I have to say, I think that even before the pandemic, you were seeing these major shifts in people going less to movie theaters. Now with so many great streaming services available, and those businesses are growing by leaps and bounds, people like the idea of being able to sit at home in their PJs and turn on their favorite movie, or catch something shortly after it's released on their favorite platform, and they don't have to go to the theater.

Then with the pandemic, that of course just heightened that trend. I think it goes back to what you were saying, Jason. I think the business model in and of itself is not what it used to be. Then I think that couples with AMC's current situation and the fact that it can't seem to do anything to raise more capital to tamp down that debt. I just think it's a lose-lose situation.