Some of the biggest victims of the stock sell-off in 2022 are the meme stocks that got so much attention in 2020 and 2021. Video game retailer GameStop sells for 59% less than its 52-week high, and meal-kit specialist Blue Apron has fallen back into penny stock territory.

The next meme stock with real potential to return to penny-stock status may be AMC Entertainment Holdings (AMC 8.22%). Although a good portion of the audience populating this cinema chain's theaters has returned, the movie theater stock faces an uncertain future as it tries to overcome numerous struggles. That's what makes this a stock for long-term investors to avoid. Let me explain.

AMC may never fully recover

Investors should first distinguish between AMC as a company and AMC as a stock. Admittedly, AMC as a company is unlikely to go away as audiences have returned to theaters and ticket sales are seeing some recovery.

In the first half of 2022, AMC sold more than 98 million movie tickets, 240% more than the first two quarters of 2021. Unfortunately, that level of ticket sales still comes nowhere close to matching pre-pandemic levels. Consumers bought 177 million movie tickets in the first half of 2019.

Even the success of a movie like Top Gun: Maverick, which went a long way in boosting AMC's numbers, still leaves the company hungry for a truly big hit in 2022. Ticket sales may improve in the second half as film studios release potential blockbusters like Black Panther: Wakanda Forever and Avatar: The Way of Water. But even with the revenue from those movies, it may not be enough to help AMC's ticket sales return to pre-pandemic levels.

AMC has a lack of direction

One alternative for companies that see their current business go into long-term decline is to diversify their revenue streams by moving into other businesses. AMC resorted to this, but its diversification strategy is getting increased scrutiny.

For instance, the decision last year to sell popcorn outside of movie theaters seems to make sense. While success is not guaranteed in that competitive industry, its position as the No. 1 seller of movie theater popcorn could give it an advantage.

What makes less sense is its decision to invest in Hycroft Mining, which specializes in precious metals mining (i.e. gold and silver). Investors are probably right to question this judgment call as running a movie theater bears no obvious connection to mining precious metals. Now that Hycroft has received a delisting notice, the lack of mining industry knowledge has only become more apparent.

AMC's financials need a boost

Like with ticket sales, the needed improvement in AMC's financials will probably not come anytime soon. Revenue in the first half of 2022 more than tripled year over year to just under $2 billion, but it still lags the first two quarters of 2019 when revenue reached $2.7 billion.

Furthermore, losses for the first two quarters of 2022 came in at $459 million. Analysts also expect losses to continue through next year even as revenue continues to improve.

Additionally, the company held just under $1 billion in cash on its balance sheet at the end of Q2. This meant that it needed additional cash to maintain operations and pay down debt, so it issued 425 million AMC Preferred Equity (APE) shares. But in their short history, the so-called "preferred" shares have not fared any better than the parent stock.

AMC Chart

AMC data by YCharts

Also, with a negative book value and $5.4 billion in corporate borrowings, turning to the debt markets further burdens a strained balance sheet. Under such financial conditions, it is unclear how the stock price can recover without the fickle meme-driven hype of 2021.

Long-term investors should avoid AMC stock

Unfortunately for AMC, a return to normalcy following the pandemic is far from translating to financial success. Even with some movie blockbusters coming back to theaters this fall, a return to profitability is nowhere in sight.

While it had benefited from becoming a meme stock, AMC appears on track to return to penny-stock levels, and investors have few reasons to believe its preferred equity shares will outperform regular AMC stock. Although meme investors could again take this stock higher for a time, the company and the stock have no obvious path to sustainable growth.