Skip to main content

GameStop vs. AMC Entertainment: Which Is the Better Stock?

GameStop and AMC are two of the most popular retail investors favorite stocks. But which one is a better investment, GME or AMC?
  • GameStop and AMC Entertainment are down about 28% and 70%, respectively, this year alone.
  • AMC is saddled with a huge amount of debt, while GameStop has managed to pay off many of its obligations.
  • AMC investors also face the risk of share dilution if the company decides to convert APEs to common stock.
Figure 1: GameStop vs. AMC Entertainment: Which Is the Better Stock?

Figure 1: GameStop vs. AMC Entertainment: Which Is the Better Stock?

Read more from Wall Street Memes: 5 Heavily Shorted Stocks To Watch Right Now

GME vs. AMC: Capital Structure

First, let's take a look at GameStop  (GME) - Get Free Report. The video game retailer currently has a robust cash position of $908 million. It's also virtually debt-free.

GameStop raised much of its cash thanks to a staggering $1.67 billion equity issuance last year.

The company's executives took advantage of the sky-high valuation and firmed up their reserves.

Because of this, GameStop was able to pay off nearly all of its outstanding debt position and still keep about $1 billion in cash.

Still, GameStop isn't content to remain idle. The company has a plan to put its capital to work by strengthening its fulfillment capacity and advancing its digital-focused turnaround plan.

Therefore, GameStop's considerable cash hoard will offer it some extra cushion, should macroeconomic conditions get worse.

Still, it's worth pointing out that cash raised through equity issuances is different than cash raised from a company's operations.

Last quarter, GameStop used about $380 million in cash to support its operations. That's a 15% reduction from the previous quarter, but the situation needs to improve further. At the current pace, GameStop could put its balance sheet in jeopardy and even run out of cash as soon as next year.

On the other hand, AMC Entertainment  (AMC) - Get Free Report has a more complicated situation regarding its balance sheet. AMC carries a high debt load of about $10.4 billion and a cash position of $904 million.

In other words, the company has more liabilities than assets.

Even with high debt, the movie theater chain has managed to achieve a stable liquidity position. Recall that AMC issued new shares in January and June 2021. The June issuance program generated about $587.4 million for the company's cash flow. This allowed AMC to avoid bankruptcy.

However, AMC is determined to repay its high-interest loans and deferred rent. Last quarter, the company refinanced approximately $941 million in debt, paying 7.5% on these funds, with the principal due in 2029.

The scenario of high-interest rates and inflation tends to impact more severely leveraged companies. Therefore, those that have low debt loads and more relevant cash positions tend to be less affected. That's not AMC's situation.

Share Dilution Risk

GameStop and AMC are different from other stocks mainly due to the retail investors who support them.

Retail investors own approximately 82% and 90% of GameStop and AMC shares, respectively.

In the last 18 months, the trading performances of both stocks have been marked mostly by retail investor sentiment and short squeezes along the way.

However, the factor that gives GME's retail investors the upper hand over AMC is the likelihood of share dilution.

Even though GameStop has been burning cash in recent quarters, the company's very low debt, along with its cash holdings, doesn't require it to hurriedly seek more capital or issue more equity.

The same does not apply to AMC. The company created AMC Preferred Equity (APE) shares to strengthen its cash balance through the eventual issuance of more shares or by converting them into common stock — which would be the same as dilution.

There is recent news that AMC is looking to sell more of these preferred shares. The company could potentially raise $1.6 billion from teh sale — which would be great for paying down debt and maintaining a healthy liquidity position.

Technical Analysis

Even though there are a lot of reasons to be bearish about meme stocks and other highly speculative assets, investor sentiment could trigger new rallies in both GameStop and AMC in the near future.

Both continue to be among the most searched stocks on Google search and the most discussed tickers on social media platforms — even more so than giant tech names like Apple  (AAPL) - Get Free Report and Tesla  (TSLA) - Get Free Report.

Figure 2: Most searched stocks over time on Google.

Figure 2: Most searched stocks over time on Google.

Figure 3: Trending stocks on Reddit on September 28.

Figure 3: Trending stocks on Reddit on September 28.

However, comparing both stocks side-by-side, we see that sentiment toward AMC is more fragile than that toward GameStop.

That's because AMC shares have dropped 70% year to date, vs. 30% for GME.

According to Simple Moving Average (SMA) analysis, which measures the average price of a stock over a specified period, both GameStop and AMC hold short-term and long-term bearish positions.

However, looking at the money flow index — which indicates whether a stock is overbought or oversold by looking at the share price and trading volume data over the last 14 days – AMC currently has a money flow index of 36, indicating a tendency to be oversold. GameStop sits at 50, neither overbought nor oversold.

Oversold assets demonstrate investor sentiment that trading is below a stock's actual value. This may be due to bearishness due to some specific issue such as share dilution or a weak outlook.

Therefore, GameStop looks like it's the better stock of the two.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)