AMC Entertainment Group (AMC) has been one of the most prominent stocks in 2021. The company gained mass popularity from the part it played in an epic meme-stock trading frenzy that started early in the year. That was when a group of traders got together on social media message forums and encouraged each other to buy and hold shares of AMC stock to force a short-squeeze.
Their enthusiasm had AMC stock up an incredible 2,000% at one point during the year. The interest is fizzling out, and AMC has since lost half of its value but the stock is still up more than 1,000% year-to-date in 2021. As the new year approaches, let's dive into AMC's business and determine whether long-term investors should buy, sell, or hold AMC stock in 2022.
AMC is still far from full strength
AMC's business is still recovering from the harmful effects of the pandemic. The company had to shut all its theaters for about a year to help slow the spread of the virus, and since it earns nearly all its revenue from theaters, the impact was catastrophic. Management deserves some respect for its efforts in raising cash to sustain the company while revenue fell dangerously close to zero.
For the year, AMC's revenue fell by 77% in 2020, which led to a $1.5 billion loss on the operating income line. Revenue rebounded dramatically in its most recent quarter ended Sept. 30, rising to $763 million from $120 million at the same time last year. Still, that is far below the quarterly pace it would need to get back to the pre-outbreak levels in 2019.
The pandemic was not the beginning of the company's troubles, though. AMC lost money on the bottom line in four of the nine years before the health crisis. The customer value proposition has worked against AMC. Over the years, fewer and fewer people were willing to pay the minimum of $10 per ticket for each movie and even higher prices in some areas. As a result, the movie theater industry in North America has been steadily declining.
To make matters worse, AMC has high expenses -- rent and interest payments alone totaled $304 million in the third quarter. These fixed costs have to be paid regardless of AMC's sales. In addition to declining attendance, this structure of fixed costs is the other reason AMC has lost money on the bottom line in several years.
AMC insiders are selling, and so should you
While AMC will likely continue to rebound in the near term as the world recovers from the pandemic, the company's long-term prospects are not bright. The rise of streaming services is likely to keep movie theater attendance in perpetual decline, and AMC's high fixed costs could keep losses accumulating on the bottom line for several quarters to several years.
That could be one reason why AMC insiders like CFO Sean Goodman and CEO Adam Aron are selling shares as fast as possible. Investors would be prudent if they followed the insiders' example and sold whatever shares they owned of AMC stock in 2022.