Dividend Stocks

When the Dust Settles, Cinemark Will Be a Better Bet Than AMC Stock

For the past two days, many eyes have been focused on the meme stock rally that has overtaken markets. Keith Gill, who is credited with helping start the GameStop (NYSE:GME) squeeze of 2021, decided to return to social media on May 12. Also known by the username Roaring Kitty, Gill posted a seemingly random hand-drawn meme which quickly sent retail traders into a frenzy. As a result, meme stocks are now surging this week.

When GME rises, AMC Entertainment (NYSE:AMC) is usually close behind. In fact, AMC actually outpaced GME for much of May 13, rising above the $5 mark. But now the momentum is proving unsustainable, with AMC stock trending downward today, although shares are still in the green.

This should serve as a reminder to investors that meme stock surges never last. Meme stocks can pop unexpectedly and go on impressive rallies. But just as quickly as they rise, they often end up back in the red. For that reason, one of AMC’s more stable rivals is a better bet for long-term gains. Cinemark (NYSE:CNK) has risen steadily over the past six months without meme stock status.

What’s Happening With AMC Stock?

AMC stock still closed today up by more than 30%. That is by no means a bad day of trading. But it doesn’t change the fact that shares are down from earlier gains of more than 100% which took the stock to over $10 per share this morning. Like many other meme rallies, this one seems to be starting to fizzle out.

As the two most prominent companies in the movie theater space, AMC and Cinemark are often compared. However, it doesn’t take much to see that one company is a much better investment than the other. While AMC has struggled over the past one year, CNK stock has been growing steadily.

This progress has led to Wall Street sentiment growing increasingly positive for shares. Wells Fargo recently upgraded CNK stock, raising its price target from $13 per share to $23. Other firms, such as Barrington and Benchmark, also maintain “buy” ratings and bullish price targets for CNK.

Meanwhile, there are plenty of company-specific reasons for investors to approach AMC stock with caution. As InvestorPlace contributor Muslin Farooque reports:

“Debt is a huge problem for AMC, and it is set to weigh down its bottom line even more, as it looks to extend its debt maturities. The company is up against secular headwinds, where streaming continues to outpace traditional cinema attendance. In fact, according to a recent Bloomberg report, movie ticket sales in the U.S. and Canada continue to lag behind pre-Covid levels, negatively impacting a potential recovery of theater chains.”

Why It Matters

It’s exciting when meme stock rallies take struggling names to impressive heights. But as this week’s events have shown, unstable companies don’t often stay in the green for long.

When a company skyrockets 100% without a good reason, it will inevitably come back down. That’s exactly what’s happening with AMC stock. In my view, streaming stocks can offer investors much more growth potential compared to their peers in the movie theater space. For anyone looking to play that part of the sector, though, Cinemark has repeatedly shown that it’s a better bet than AMC.

On the date of publication, Samuel O’Brient did not hold (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.

Samuel O’Brient is a Reporter for InvestorPlace, where his work focuses primarily on financial markets, global economic trends, and public policy. O’Brient writes a weekly column on recent political news that investors should be following.

Newsletter