In 2020, global movie-theater chain AMC Entertainment (NYSE:AMC) was in major trouble because of the Covid-19 lockdowns. Some AMC stock investors hope to participate in an epic comeback story. However, AMC Entertainment still has problems, and I don’t expect this movie to end happily.
Meme stock traders haven’t focused on AMC Entertainment much lately. This means the company and its stock will have to succeed on the strength of the business and the reputation of AMC Entertainment CEO Adam Aron. All in all, buying and holding AMC shares isn’t a favorable bet for prudent investors to make right now.
AMC Stock’s Failure to Launch
Aron and AMC Entertainment are heavily promoting the Taylor Swift concert film. Reportedly, Taylor Swift: The Eras Tour generated over $100 million in pre-release ticket sales and, after hitting theaters on Oct. 13, pulled in $120 million worth of opening weekend box office receipts.
Yet, AMC stock dropped 13% on the Taylor Swift movie premiere day and sank another 3% to 4% the following Monday morning. So, what gives?
I’ll tell you what it gives. Aron and AMC Entertainment are hyping these box office events ahead of time so dramatically that they become “buy the rumor, sell the news” scenarios.
That’s why I recommend selling AMC stock on every pop. Those share-price pops are built on hype and fail because the reality can’t possibly live up to that hype.
Aron’s Reputational Crisis
Furthermore, remember that much of the enthusiasm surrounding AMC Entertainment is due to its CEO’s reputation as a brilliant leader. Aron has an almost cult-like following of so-called ‘apes’.
I’d even claim that AMC stock’s ascent in 2021 was supported by two pillars: the meme stock movement and Aron’s reputation. One of those pillars is gone now, as the meme stock phenomenon is mainly in the rear-view mirror.
And now, Aron’s reputation might be in trouble. I’m not going to engage in any victim-blaming here. However, Aron recently admitted that he “became the victim of an elaborate criminal extortion by a third party who was unknown to me related to false allegations about my personal life.”
This unfortunate development has been called Aron’s reputational crisis. I’m not saying that Aron deserves to have his reputation damaged. Instead, I’m suggesting that the market, sometimes ruthless as it can be, might punish AMC stock in the wake of this development.
AMC Stock: Sell It Even if It Rallies in Q4
A corporate executive’s reputation can be a fragile thing. It can be easily damaged, and AMC Entertainment’s investors shouldn’t pin their hopes on Aron’s reputation remaining intact.
Moreover, AMC Entertainment still has billions of dollars worth of short- and long-term debt, and a few dramatically hyped films won’t likely solve this problem.
Nevertheless, AMC stock might catch a few hype-fueled waves and move higher in 2023’s fourth quarter. However, I still recommend selling the stock if that happens, as all rallies will be viewed with suspicion.
On the date of publication, David Moadel did not have (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.