How Long Will the Greater Fool Theory in AMC Entertainment Stock Last?
AMC Entertainment (AMC) stock was trading sharply lower in the early price action on July 8. The stock extended its slide from the last few trading sessions. The stock is now down over 40 percent from the 52-week highs. AMC and GameStop (GME) are the two poster boys of meme stocks. Both of them trade at levels that Wall Street analysts can't justify with traditional valuation models. For analysts, GameStop is a gaming retailer and the industry is fighting for relevance as gaming moves online. AMC is a cinema chain company trying to fend off streaming companies from its turf while also negotiating the twists and turns of the COVID-19 pandemic. AMC stock on Reddit group WallStreetBets  Apart from the pumping from Reddit traders there didn't seem to be a reason why AMC stock should have risen to its all-time highs. Even now, AMC stock trades at over 7x of what it did before the COVID-19 pandemic. Article continues below advertisement  While the company managed to survive the pandemic, it came with a series of costs. The companys book value per share is negative and the price-to-book value ratio is negative 8.8x. Article continues below advertisement  The company has over $11 billion in total liabilities which include debt, lease obligations, and deferent rent obligations. AMC had to resort to debt issuance and equity issuance to keep afloat. At times, it has been difficult to keep track of stock issuance by AMC, which has almost been a flash sale. However, this time, stockholders blocked the proposal to issue another 25 million shares. Article continues below advertisement  Source: TIKR AMC has negative book value per share  AMC is now majority-owned by retail investors, unlike most other U.S. companies where institutional investors are the biggest investors. However, at the current price levels, not many institutions will want to hold AMC stock. Article continues below advertisement