The mettle of retail investors flocking to popular meme stock AMC Entertainment (AMC  ) is being tested as the once surging stock tumbles to below half of its peak.

The reality check has been predicted by many experts and was precedented by the stumble of Orphazyme (OPRH  ). As I wrote in June, Orphazyme was a case of younger retail investors flocking to a meme stock in the belief of a coming short squeeze. The short squeeze, so they hoped, would come from an impending U.S. Food and Drug Administration (FDA) decision; the investors, however, did not consider weak trial data that preceded the decision. Meme investors had not accounted for the possibility of a negative outcome and the resulting dismal financial guidance that would follow.

AMC is a similar case, with meme investors not properly assessing the financial health and performance of the company. While the meme stock surge was undeniably beneficial for the movie chain, there were, and still are, fundamental problems with AMC that the surge won't fix.

Even with the pandemic easing, a noticeable chunk of movie theater chains' market share is missing, having been firmly entrenched by the likes of streaming as theaters reopen. In addition, despite AMC's harsh reprisal against Universal Studios (CMCSA  ) last year for considering a dual-release model for future films, much of the industry is pursuing or at least considering a similar release model. AMC also remains considerably leveraged, shouldering over $4 billion in debt.

Despite the consistent promises of a short squeeze around the corner, it's safe to assume that AMC may finally be facing a retreat from investors, given the recent selloff and the ongoing lack of buy ratings from analysts. AMC is down 25% for the week so far, having plummeted to $33.42 by Wednesday, from $44.49 at market open on Monday.