The Siren Song of AMC Stock: Resist the Call of This Meme Game in 2024

AMC Entertainment (NYSE:AMC) has certainly seen its fair share of bullish moves during recent meme stock rallies. In fact, AMC shares rose sharply during the recent run-up this year as speculators pounced on this beaten-down name.

Much of this activity was related to other meme stocks GameStop (NYSE:GME), and the re-entry of Keith Gill and retail investors into the name. However, aside from highly speculative factors, there are no real fundamental catalysts that suggest this stock is worth buying at this time.

So, for those looking to deploy capital in this environment, the question is whether AMC is worth the risk right now. For that reason, I think this meme stock is a stock to avoid given the current backdrop.

AMC stock will continue to be volatile

AMC faces impending capital needs and potential volatility, according to analysts at Wedbush. The firm, known for its bullish analysts, is among the group advising investors to be cautious on this turnaround story.

Although the theater operator has paid down $1 billion in debt since 2022, it is still struggling with a $4.4 billion debt load. Much of that debt is due in 2026, which could lead to further stock sales that would further dilute the stake of existing shareholders.

Considering that AMC is willing to issue shares every time the price goes up, the timing is difficult for investors who want to ride the winning streak of another meme surge, even over very short periods of time.

The company’s focus on debt reduction is clouded by its high debt burden and lack of dividends, factors that overshadow potential growth in market share and revenues in Europe.

Currently, given ongoing losses, AMC continues to rely on stock sales to raise capital and meet interest payments, which contributes to expected share price volatility.

Wedbush pointed to the industry’s difficult year-on-year comparisons due to recent cash flow problems and expects a recovery by summer despite the challenges until September.

While it’s important to highlight AMC’s potential growth with a strong film slate in 2025 and an increase in new releases, the company’s fundamentals don’t seem to be heading in the right direction at all.

Competition is intensifying

With Netflix (NASDAQ:NFLX) recently launched its own popcorn brand, Netflix Now Popping. This release now competes with AMC’s Perfectly Popcorn. Netflix has partnered with Popcorn Indiana on the popcorn brand in question.

This is the same partner that AMC shows, with Netflix Now Popping also made available in Walmart (NYSE:WMT) Shops.

Given Walmart’s extensive retail footprint and AMC’s established presence, this competition presents a challenge for AMC CEO Adam Aron.

AMC Theaters sells ready-to-eat and unpopped popcorn in classic varieties such as Classic Butter, Extra Butter and a lightly salted variety, while Netflix has launched flavors such as Cult Classic Cheddar Kettle Corn and Swoonworthy Cinnamon Kettle Corn.

AMC’s simple flavor names contrast with Netflix’s more complex offerings. Netflix wanted to appeal to different tastes with its popcorn line, although it has 270 million subscribers and only offers two flavors, which makes variety seem limited.

This move by rival Netflix may be a joke, but it is emblematic of the existing competitive forces that many are already focusing on when it comes to AMC.

The company’s entire business model has been upended by streaming services, and it’s unclear how sustainable the company’s business model is in the long term. If you’ve read my opinion on this company, you already know that I think streaming will take a much larger market share away from theater operators over time.

This latest move to compete in the popcorn business is just one symbol of an ongoing battle for market share that I believe AMC will lose.

AMC is a sale

Investors should rightly question whether it is wise to buy AMC stock. The film industry is facing challenges, as evidenced by mixed performances such as Disney’s Inside Out 2, which grossed $154 million, and Bad Boys: Ride or Die, which grossed $56 million.

AMC’s reliance on summer blockbusters to attract higher attendance is complicated by a reduced schedule compared to previous years.

While there is certainly the potential for future upside associated with meme stocks, I continue to think AMC is far too risky a bet here. There are far better options for growth investors in the current market. At least, that’s my current view on this embattled movie theater chain operator.

As of the publication date, Chris MacDonald did not hold (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s disclosure policies.