AMC Entertainment Holdings (AMC -0.78%) shareholders have to be tired of what they're seeing. AMC shares are trading lower for the fifth consecutive month, and the stock is down a blistering 69% since peaking seven months ago. There doesn't seem to be a lot of relief, and the sell-off is intensifying in recent weeks. Here's how the stock has fared recently:
- September: a loss of 19%.
- October: a loss of 7%.
- November: a loss of 4%.
- December: a loss of 20%.
- January: a loss of 16%.
The stock would have to more than triple to get back to where it was at June's all-time high. It's a tempting value proposition, but a lot of hopeful bulls have been calling a bottom all the way down. When the stock hit a new seven-month low late last week it meant that everyone who has bought into the stock since Memorial Day weekend last year is in the red with those positions. Arguments that hedge funds and short-sellers would be squeezed don't have the same oomph when it's the leveraged longs getting the margin calls.
Waiting for a Hollywood ending
It doesn't seem right. Revenue is still not back to where it was in 2019, but December domestic box office receipts for the industry were the highest in any month over the past two years. The pipeline of upcoming releases is strong. In AMC-specific bullish news, the exhibitor is gaining market share and has improved its monetization through mobile ordering for concessions and reserved seating to encourage early bookings.
Should AMC stock really be worth less than a third of what it was back in early June? After all, when AMC shares peaked it was nearly 16 months since the last time U.S. ticket sales for the industry topped $100 million for a weekend. The problem with the comparison is that baselines matter. As rough as the past seven months have been for anyone holding AMC, the company itself was worth a lot less a year ago -- or even two years ago before the pandemic slammed the multiplex operators.
The stock itself is higher now than it was in mid-January of last year, and that's not the whole story. AMC's weighted share count has gone from 107.7 million to 513.3 million over the past year. Retail investors have seen their share of the company get diluted by 81%, as AMC issued stock at much lower price points a year ago to raise the financing needed to stay afloat.
The deluge of new shares was necessary to keep AMC viable, but it does make it harder to keep the upticks coming given the stock's steep historical valuation. There are lot more people betting against AMC these days, but short interest of just below 19% is essentially where it was a year ago since there were a lot fewer shares outstanding. The bullish narrative of "apes" with "diamond hands" doesn't hold up since somebody's selling to provide the average trading volume of 43 million shares over the past month. Even AMC's CEO and CFO have been selling chunks of their positions since November.
It doesn't have to end badly. AMC is legitimately in better shape now to capitalize on its patrons. CEO Adam Aron has made some smart moves to capitalize on his company's status as a meme stock. He set up the AMC Investor Connect program to send what is essentially marketing missives to its millions of retail investors. A recent non-fungible token (NFT) promotion to promote a new release was a hit, and it's given AMC a new digital incentive to keep folks buying tickets. The fact that Aron has been able to keep shareholders hopeful despite the insider selling and a drawdown of nearly 70% from its peak is impressive.
Whether AMC finally bottoms out or not in January, AMC has set itself apart from the rest of the market's movie theater stocks. It's positioned to survive in the near term, and if Aron succeeds with his 2022 plan to refinance some of AMC's high-interest debt at lower rates and extended maturities it will have a longer lifeline than naysayers expect.