AMC Entertainment (NYSE: AMC) shares have declined along with many other meme stocks and retail favorites as the Fed tightens monetary policy which has caused short-term rates to shoot higher in recent weeks. Overall, the stock is down about 43% over the last month and 69% from its peak of $72 in the first week of June.
Still, shares remain higher from the year's opening print of $2.2 by 945%. AMC benefitted from the same dynamics as many other meme stocks. The stock was essentially priced for bankruptcy given the challenges of the pandemic, high levels of debt taken on by the company to get through the recession, and long-term, bearish trends for movie watching especially as the home viewing experience has significantly narrowed the gap with theatres.
These fundamentals naturally led to funds and traders building large short positions in the stock. Of course, this attracted traders on social media who piled into the stock, creating a short squeeze that was even more impressive than Gamestop (NYSE: GME) by some measures.
The spike in AMC's share prices gave the company an opportunity to raise money at favorable terms and use these proceeds to retire some of its debt. So, AMC's management team should be applauded for taking advantage of this unusual circumstance. The company has even leaned into the meme stock hysteria by launching NFTs and the CEO Adam Aron having a very public and boisterous presence on social media.
But, the main issue with the stock is that the longer-term fundamental issues continue to persist. Moviegoing is in a terminal decline even with a bump following the reopening of theatres. Currently, all AMC theatres are open in many parts of the country. But, the experience has lost its appeal with many new releases immediately available for streaming for a cheaper price and bigger and better TVs at home.
Even after its decline, the stock is very expensive with a $12.5 billion market cap and $1.5 billion in revenue. Next year, analysts expect the stock will lose $0.71 per share. These developments mean that traders should be open to the possibility that the stock returns to to its pre-2021 levels of trading under $5. Another bearish development is that insiders have sold $70 million of the company's stock.