Pain continues to be the feature presentation for AMC Entertainment Holdings (AMC 9.56%) investors. Shares of the leading multiplex operator opened 78% below last year's all-time high on Tuesday, a grim reminder that just having a passionate community of retail stakeholders isn't enough to keep a stock going.
Starting lines matter, of course. As brutal as AMC's plummet has been since peaking in early June of last year the stock has still more than tripled over the past year. The problem here is that a lot of AMC retail investors aren't long-term holders. A lot of them have joined with the stock on the way down, and in some cases this is their first and only investment in the stock market.
They have been buying the dip, even if it's probably more fair to call a nearly 80% plunge from its peak more a canyon than a dip. What if they're buying the wrong dip? What if real dip worth buying -- the one that can turn things around -- is the nacho cheese dip that AMC sells at the concessions stand inside its theaters? Hear me out.
Image source: Getty Images.
Fade to black
AMC has millions of retail investors, and many of them have bonded online. There is power in the galvanization, but it's also dangerous beyond the pitfalls of echo chambers and confirmation bias. Someone with a diversified portfolio doesn't cheer exclusively for a single stock, embracing the cult of personality and erecting a wall to block out anyone who disagrees with them.
Banding a bunch of like-minded investors together to push a stock higher can only take you so far, and we've seen that awkward gravity play out over the past eight months. The better strategy -- especially for a consumer-facing business -- is to use that megaphone to promote the product itself. It's been seven weeks since I argued that AMC needs more fans than cheerleaders. The stock has been cut in half in that time, but it's the business itself that needs promoting.
Value investing icon Benjamin Graham famously said that the market is a voting machine in the near term but a weighing machine in the long run. Hype and buzz can push any share higher, but for the gains to stick there has to be an improvement in fundamentals. The multiplex industry can use some loving.
Spider-Man: No Way Home had a monster opening weekend in December, but box office receipts for exhibitors have fallen sharply in recent weeks. Just $45.7 million in tickets were sold across all movie theater operators this past weekend, 62% below the comparable weekend from two years ago (and 56% less than the same post-Martin Luther King Jr. holiday weekend in 2019). Put another way, less than 1.5% of the country went to a movie theater this past weekend.
The substantial online community of AMC "apes" sometimes appears to exist solely to promote conspiracy theories or the joys of owning a non-diversified stock portfolio. The problem is that even AMC's own CEO has had to point out that there is no evidence to back up the most popular conspiracy theory, and he was joined by the CFO in recent months in selling most of their fully vested shares. The real power in a community would be to promote the product. Why aren't AMC investors also the platform's loudest customers? Why aren't they loading up on high-margin snacks -- like nachos with cheese dip, of course -- and beverages? If they are going to see movies and box office receipts are still less than half of what they were two years ago then we may have an even bigger problem for movie theater stocks in general and AMC in particular. The online community has failed to lift AMC shares higher, but it's not too late to influence the fundamentals that could ultimately send the stock higher again.
