Should I buy battered AMC Entertainment shares in 2023?

AMC Entertainment (NYSE: AMC) stock cratered more than 85% in 2022. That’s an epic erosion of value! So this is now my chance to pick up AMC shares cheaply? Or is this an investment I should steer well clear of?

Meme stock mania

As a reminder, AMC Entertainment is the largest movie theater chain in the world. The core business has been in decline for a long time before Covid, with debts increasing and traffic running at these locations. The stock has actually underperformed over the years. Then the pandemic and the next lockdown is a sledgehammer blow to the company’s balance sheet.

However, AMC became a popular meme stock in 2021 when retail investors joined online forums and bought the stock. Starting at just $2 in 2021, the stock rose more than 36-fold to reach a high of $72 just six months later.

This speculative interest saved the company from the brink of bankruptcy. Management took the opportunity to issue new shares at high prices, raising a significant amount of capital.

In fact, when Cineworld (competitor AMC) filed for bankruptcy last year, the deputy CEO lamented not getting caught up in the meme stock frenzy either. He said: “While Cineworld would, of course, have welcomed the liquidity of being a ‘meme stock’ like AMC, we were never so lucky!”

However, fast forward to today and the majority of the gains in AMC stock have evaporated.

Move your head

The company continues to come up with ways to raise capital to pay off its growing debt. While this is wise with interest rates rising, some other ventures seem more questionable to me.

For example, the company made headlines last year when it announced the purchase of a 22% stake in a so-called gold miner. Hycroft Mining. AMC CEO Adam Aron described the investment as “bold diversification movement“.

I see this as a strange use of capital, to say the least. The company’s strength is in trying to create — and then extract — value from the moviegoing experience, not analyzing gold-mining stocks. It’s this deviation from our core business that makes me worry about another maverick move to come.

Box office recovery

That being said, there could be short-term positive catalysts for the stock. One is that the global box office is expected to recover strongly this year as more blockbuster films are released.

There was evidence last week when it was announced Avatar: The Way of Water has earned $1bn in global ticket sales in just two weeks. More big-budget films are slated for release in 2023.

However, moviegoing is not expected to return to pre-pandemic levels until 2024 or 2025. If ever.

Should I buy shares?

As famous investor Ben Graham said: “In the short term, the market is a voting machine, but in the long term, it is a weighing machine.”

Never has that been truer than with AMC over the past two years. In the long run, the company’s bottom line is the most important.

And with the stock heavily diluted and net debt now at $4.6bn, this company doesn’t look attractive to me. So I won’t buy the stock.