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Investors are always balancing risk and reward, but even the best plans can be troubled by emotions, which is why anyone with AMC Entertainment (asset management company -9.11%) Stocks today need to take a step back and question why. Indeed, there are plenty of reasons why you shouldn’t. Here are some to test your investment thesis.
1. Roller coaster
Volatility is difficult for most investors to deal with. It can lead to emotional coercion and ultimately poor decision-making. Shares in AMC Entertainment, one of the world’s largest movie theater operators, climbed almost vertically in early 2021, up about 800%, but plummeted shortly thereafter. Then, in late 2021, the stock surged again, bringing the year-to-date gain to over 2,500%!
Image credit: Getty Images.
Since then, the stock has been in a long-term downtrend, with painful ups and downs along the way. Shares are now down more than 80% from their peaks. This is a level of volatility that few investors can tolerate without some impact on their emotional health.
2. It’s a meme
In the end what happened? The answer is simple: Residents of the message boards (for a variety of reasons) think AMC is an interesting stock to talk about and trade.In market terms it is meme stockThe problem is that meme stocks move in dramatic and unpredictable ways. That’s because people on message boards don’t make decisions based on fundamentals, but on whims and rumors.
This means that there is no way to predict which direction the AMC winds will blow next. If you value fact over fiction, you may want to avoid all memes.
3. Still struggling
Interestingly, AMC’s business has been underperforming, which has been the case since the 2020 coronavirus pandemic first brought its ugly head. This isn’t shocking, as social distancing is difficult in movie theaters.
But even in the most recent quarter, long after the strictest government guidelines subsided, the company still lost $0.20 per share. While that’s an improvement from a loss of $0.71 a year earlier, it’s still a loss.
Still, the stock has risen more than 350% since the start of 2020, despite the underperformance of the business. Investors should find these juxtaposed facts relevant.
4. A peer just went bankrupt
Meanwhile, AMC’s closest open competitor, Movie World Group, recently filed for bankruptcy. Essentially, dire industry dynamics are too much for the company.
That’s not to say AMC can’t withstand the strong winds it faces, but based on its earnings, it’s not exactly booming.Therefore, Cineworld chose seek bankruptcy Court protection may be Raising alarm for AMC shareholders Because it makes a broader statement about the movie theater business.
5. Not very shareholder friendly
Meanwhile, AMC management has been making some interesting decisions lately. It sold a lot of stock in the early days of the meme stock trend. This could be a good move and could save it from potential bankruptcy.
However, it tried to get back to that well, and investors rejected more ideas dilution. Faced with failure, management decided to spin off preferred stock, which trades under the ticker symbol . (ape -9.26%), to shareholders. However, the move may be to sell more preferred shares on the open market.
Then there is the March 2022 investment in gold miners Highcroft Mining (HYMC -10.76%). What does the gold mine have to do with movies? If you can’t figure this out, that’s another reason to avoid AMC positions.
It’s hard to argue with someone who thinks management is thinking about things other than shareholders right now. This is not the type of company that most investors should trust.
risk and reward
Movies are unlikely to disappear, but the industry is different today than it was just a few short years ago. Meanwhile, AMC stock has been volatile as the company struggles and makes questionable business decisions.
AMC now looks more like a gamble than an investment, and if that’s what you want, that’s fine. However, most long-term investors probably aren’t looking for a casino-like boom when they buy stocks. Even the most aggressive investors should think twice about AMC Entertainment.
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