Investors in meme stock AMC Entertainment (NYSE:AMC) certainly have plenty to digest today. At the time of this writing, AMC stock is down more than 3%. In some regards, this move makes sense, given the downward trajectory the company has been on from a fundamentals perspective.
Yes, we had a brief meme stock rally in AMC stock, with meme king Keith Gill (aka Roaring Kitty) coming back into the GameStop (NYSE:GME) fray. However, both GameStop and AMC have lost momentum since Gill’s return, as investors clearly are pricing in what share issuances mean in terms of dilution as well as the lack of cash flow-producing initiatives at both companies.
Today’s decline comes in the face of a rather positive announcement put forward by AMC’s management team. The company noted that it just saw its highest-grossing weekend for 2024, both domestically and around the world. From Friday to Sunday, June 14 to June 16, the company saw record attendance and admissions revenue. One might think this would be a piece of news speculators and meme stock investors would jump on.
Let’s dive into why that doesn’t appear to be the case.
Good News Isn’t Good News Anymore for AMC Stock
AMC’s fundamentals have continued to deteriorate in recent quarters. And, despite the company raising billions from share sales during previous meme stock rallies, it’s clear investors are now pricing in a dilution-heavy future for the theater chain. If the company issues new shares every time the stock price goes up, that doesn’t bode well for investors putting fresh capital to work. It’s that simple.
Additionally, there’s the narrative that theater chains are likely to go the way of the dodo, with streaming and other live entertainment options taking share from consumers. CEO Adam Aron appears to disagree with this sentiment. But the reality is that AMC needs to see these kinds of record numbers more regularly, or the company will continue to face the wrath of investors.
Yes, the pandemic is behind us. But for companies like AMC that were forced to raise large amounts of debt — and will likely need to reprice this debt at unfavorable prices moving forward — the outlook remains grim.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
