Moviegoers are eagerly awaiting the reopening of full-fledged cinemas. However, the industry will remain under pressure for at least a few years. Therefore, although AMC Entertainment (NYSE:CMA) is up 110% in the past three months, AMC stock remains a risky proposition.
Currently, the company’s shares are trading more than 369% above their 52-week low of $1.91. AMC was one of the first “Reddit stocks” that retail traders on the r/WallStreetBets subreddit have targeted.
Apart from the AMC, GameStop (NYSE:EMG), nokia (NYSE:NOK) and blackberry (NYSE:BB) are other meme stocks who have been the net beneficiaries of this unique phenomenon. But AMC is not solid on a fundamental basis. Movie theaters are struggling during the pandemic and the future of the industry doesn’t look good.
Instead, streaming is all the rage these days. The pandemic has only exacerbated this trend. So, with more and more entertainment companies going the streaming route, it’s certain that the movie theater business will continue to lose steam. For this reason, it’s best to book your profits now and dump AMC stock while you still can.
Gloomy outlook for AMC shares
Even before the pandemic, movie theater stocks were considered a risky investment. However, now the novel coronavirus has stomped on theaters and is doing wonders for streaming.
For example, WarnerMedia Studios (part of AT&T (NYSE:J)) recently announced that it will be releasing its entire lineup of 2021 films in theaters and on HBO Max at the same time. Wonder Woman 1984 was the first film to receive this treatment in 2020 and it became the most-watched live-action title of the year. So it’s no surprise that the company went this route.
The bigger issue for AMC’s stock, however, is that the move could lead other entertainment companies and studios to go down a similar path, focusing more on streaming than theatrical releases. That’s why, when the HBO Max decision was announced, AMC scandalized. The industry was already under fire due to the pandemic, so this announcement hit it like a ton of bricks.
In addition to that, netflix (NASDAQ:NFLX) didn’t make it any easier, announcing that it would be releasing 70 new original movies this year. The company spent over $15 billion on original content in 2019. Early last year, Variety reported that Netflix was looking to spend over $17 billion on original content in 2020.
But where did that leave AMC and other theater chains? Frankly, not in the right place.
Fun while it lasted
You must give credit where it is due. Reddit users have shaken up the markets, breathing new life into several businesses. AMC took advantage situationemitting a massive amount of equity and restructure its debt to avoid bankruptcy.
However, AMC shares will soon start trading on fundamentals. It has already cooled considerably from its 52-week high of $20.36 per share. Reddit users notwithstanding, it looks like the Sunset Years are here for movie theaters.
Big summer blockbusters can delay the inevitable. But the future of entertainment is streaming. Disposable income will take some time to recover from the pandemic, and buying a Netflix or Disney+ subscription is a much more attractive option than splurging on your local theater.
Currently, AMC shares have a $3 average price target per share of four analysts monitored by Tipranks, a drop of almost 67%. There is certainly no silver lining for this name for the foreseeable future. In reality, CNBC the data shows that the company has disappointed Wall Street estimates for the last five consecutive quarters.
In summary, AMC stock is a perilous game right now. Streaming has gained hugely during the pandemic and it doesn’t look like the trend will let up this year. The conflicting price performance of this and NFLX should tell you where the industry is heading.
So if you’re looking for more of a value game, AT&T is your best bet — not AMC.
At the date of publication, Faizan Farooque did not hold (neither directly nor indirectly) any position in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and many other financial sites. Faizan has several years of experience in stock market analysis and was a former data reporter at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions about their portfolio. Faizan does not directly hold the securities mentioned above.