It's not easy being a shareholder of AMC Entertainment Holdings (AMC 1.50%) these days. The stock is moving lower for the fifth straight month, and on Thursday, it hit another seven-month low. Shares of the country's leading multiplex operator are now trading 72% below June's all-time highs.
A lot of quality stocks have fallen sharply in recent months, and sometimes the warning signs are clear only to those who don't own shares. AMC's retail base takes things to a higher level, given its cultlike status with a CEO egging on the circus performers.
There have been many red flags on the way down for AMC. Let's break down a few of them -- and then conclude on a positive note with a green flag that the bullish camp is possibly missing as well.
1. AMC is down 46% since July 30, 2020
Conspiracy theories are entertaining at best, but dangerous at their worst. AMC fandom on message boards and social media will latch onto wishful thinking, even if it's unfounded and ultimately debunked by the company's own helmsman.
CEO Adam Aron has typically embraced the narrative of retail investors fighting against the establishment. Anyone pointing out that AMC has diluted shareholders by nearly 80% over the past year gets relegated to the rank of hedge fund mercenaries.
AMC shares have tripled over the past two years, and its market cap has popped 15-fold, but somehow pointing out that the business is nowhere close to where it was two years ago is marked as manipulation. Ask shareholders to justify AMC's enterprise value of $21 billion, and they may point to two strong weekends over the past 17 months, as if that's the future instead of the outliers that they are.
Aron thrives on the adoration, but even he sometimes has to swipe the punch bowl. He did that over the summer, attempting to silence the echoes of synthetic shares holding the stock down:
As to the existence of so-called fake or synthetic shares, or the naked short selling of AMC shares, we are unaware of any information validating these theories. Also, we are unable to make any comment on the considerable trading of puts/calls derivatives.— Adam Aron (@CEOAdam) July 30, 2021
AMC stock has shed nearly half of its value since that tweet. Even worse, the same chatter continues to disseminate unchecked.
2. AMC is down 35% since Aug. 11, 2021
Remember when Aron tweeted over the summer that AMC would be accepting Bitcoin (BTC 0.40%) for online payment by the end of the year? He would go on to expand the proposal to include other crypto denominations including meme coins in the weeks to come.
AMC announced on Monday that by year end we will have the technology in place to use Apple Pay and Google Pay in our online ticketing, and in a breakthrough, we also expect by year end to accept payment online in Bitcoin. That's a historic step for AMC.— Adam Aron (@CEOAdam) August 11, 2021
Let's set aside the fact that folks weren't able to buy their AMC tickets and concessions with crypto by the end of 2021. It was only a third-party site that allows folks to buy gift cards for many different retailers, including AMC, with digital currencies that was available by October. When the functionality eventually becomes available later this year, who is going to use it?
There were two camps that applauded AMC's Bitcoin announcement this summer. One camp was obviously AMC shareholders who don't trade crypto, assuming that it would help the stock to be associated with buzzy crypto denominations. Another camp cheering on the move was the crypto traders who don't see movies at the theater. Anyone who is both an active moviegoer and crypto investor knows that no one is going to pay for a movie ticket with Bitcoin. Crypto is an investment that is bought for capital appreciation. Why sell -- and create a taxable event with every transaction -- for a box of M&Ms?
Let's put it this way, Reddit apes: If Aron let AMC shareholders use the stock to buy movie tickets and snacks, would you do it? I didn't think so. The Bitcoin announcement was a desperate plea for a catalyst to turn the stock around, and it didn't work.
3. AMC is down 49% since Nov. 9, 2021
Aron began selling his stock a little more than two months ago, selling 625,000 shares at an average price of $40.53. The $25 million transaction was the first of three monthly automatic transactions. He has now sold most of the shares he held, though if he sticks around, he will have more than 2 million shares vest over time.
There's no shame in a CEO selling stock after big gains earlier in the year, but it's ironic that the "silverback" ape leading the army of "diamond hands" started selling at nearly double the price where the stock is now.
I promised a green flag
The good news is that the brutal sell-off over the past seven months has made the stock -- while not cheap by any conventional measuring stick -- at least less expensive. When the stock eventually settles, and meme investors move on to the next shiny retro business to manipulate high, there will be a legit business that they leave behind.
AMC is gaining market share from rival movie theater stocks right now, and it's even started to pick up theaters abandoned by other operators. It has found new levers to prop up sales (and ultimately margins), including private theater rentals, mobile ordering of concessions, and reserved seating.
The long-term outlook for the multiplex industry isn't great. Studios will no longer give exhibitors three months of exclusivity when they have streaming services to support with fresh content. We'll probably never come close in this country to the 1.6 billion tickets that were sold 20 years ago. However, as likely the last multiplex operator left standing, AMC will have time to reinvent itself, and possibly come out of this with a more dynamic business model.