It's clear that 2021 will be remembered as the year for retail investors. John Q. and Jane Q. Although the public has been investing their money in the stock exchange for more than a century, this year they are the most active.AMC Entertainment (NYSE :AMC) is the movie theater stock at the top of the list for retail investors. AMC Entertainment (NYSE:AMC) is the second-best performing stock on Finviz with a gain close to 1,400%.Retail investors go bananas for AMCRetail investors love AMC for its potential for a short squeeze. A short squeeze is a short-term event in which short sellers (i.e. pessimists betting that a company's share prices will head lower) feel trapped and want to exit. A rising share price can be caused by short sellers buying to cover their short-sold position. This is exactly what happened in January when short sellers expected AMC to file bankruptcy protection. However, the company raised enough capital via debt and share offerings to eliminate the possibility of near-term bankruptcy.According to New York Stock Exchange data, short sellers held 79.75 millions shares as of July 15.Retail investors seem to also like the company and see it as a rebound play for the coronavirus pandemic. AMC has seen its theaters' capacity utilization increase as global and U.S. vaccination rates rise. AMC CEO Adam Aron stated that AMC's U.S. theaters have seen their capacity utilization increase from 41% to 61% in the Q1 quarter, and to 68% in the first two weeks of the current quarter.AMC could lose a substantial portion of its valueDespite this optimism from retail investors, there are eight reasons AMC could return to its February low of $5.26.1. The downtrend in ticket sales has been almost two decades.The first is that Americans have stopped going to the cinema as often as they used to. The lure of movie theaters has been lost with the rise in streaming content. According to The-Numbers.com movie theater tickets have declined in value since 2002, when they peaked at 1.576 million. Even accounting for the 2020 and 2021 anomalies, domestic box office ticket sales declined 22% to 1.227 Billion in 2019.If box office ticket sales are adjusted to inflation, theaters also experienced a 22% drop in revenue between 2002 ($14.43 million) and 2019, ($11.24 billion). AMC has a larger share of what appears to be shrinking pie.2. AMC has effectively been tapped in capital-raisingThe nation's largest theater operator has tapped almost every avenue of capital raising. This is a major concern. AMC ended June with $1.81billion in cash and a record $2.02billion in liquidity. This includes its undrawn revolving loan facility. It is therefore well-capitalized for at most the next two years.AMC's outstanding share count has reached north of 513 millions. AMC therefore only has less than 1 million shares available to be issued to raise additional capital. Aron cannot issue shares without authorization from the company's passionate retail investors. This could lead to a serious problem as you will see in several points.3. This year, the company has spent nearly $577 million on cashAdam Aron quoting from the Q2 conference call of his company:We continue to lose money. We continue to burn cash. Although we are burning less cash, we still use cash and not generate cash. We are not yet out of the woods.AMC's net cash flow for the first six months of 2021 was $576.5 million. This is $33.9 million more than AMC spent in the first six months 2020. AMC's cash burn in the second quarter was less than the first quarter. However, AMC cannot continue to use cash at such a high rate without other sources of capital. Wall Street expects AMC to not turn the corner to recurring profit until at least 2024.4. It is looking to reduce corporate debt by $5.5 billionAMC's ability to take on debt helped it expand its reach before the pandemic and also help it survive lockdowns. This debt will eventually become due and AMC may not be able to pay its obligations.AMC doesn't have any debt maturities beyond 2023 and the majority of its dues won't need repaid until 2026/2027. This is a bright side. Aron might be too optimistic about AMC's ability to refinance its debt given its massive free cash outflows, and its current net debt of $3.7 billion.5. AMC's 2026- and 2027 bonds are priced below parThe company's corporate bonds 2026 and 2027 are telling a worrying story about its future.Bonds are usually priced at their face value (100), or very close to it when they are issued. AMC's $475million bond, due to mature in mid-May 2027 by AMC, was priced at 59.99. That is roughly 60% of its face value. The situation is worse for the $595 million bond, which matures in mid November 2026. It was listed at 56.07 on Aug. 10, or 56% of its par value. These bonds had face values of 80% (May 2027), and 76% (November 20,26) less than two months ago. The persistent decline in face value suggests that bondholders are skeptical that AMC will be able to stay solvent long-term. AMC will need to repay the debt via cash, not equity, if there aren't enough shares to issue.6. AMC owes $420 million in deferred rentalAs if the company's cash flow and debt problems weren't enough to worry, the company is also behind on significant rent arrears. AMC was able to delay rent payments on some of its leases due to temporary concessions related to the coronavirus epidemic. However, like its debt, the deferred rent must still be paid.Sean Goodman, AMC's chief financial officer, noted that AMC had $420million in deferred rental obligations as of June. AMC will need to pay its deferred rental obligations within the next few quarters or offer cash prepayment for better terms. AMC's record-breaking cash balance will shrink as it tries to pay its large unpaid rent balance.7. The film exclusivity has been significantly reducedThe theatrical exclusivity agreement AMC signed with AT&T's Warner Bros. (NYSE:T) was one of the highlights of the quarterly conference calls. Aron explains that Warner Bros. will offer a 45-day exclusive window in its theaters for 2022 Warner Bros. films.This may sound fantastic on the surface but AMC was already securing film exclusivity for 75- to 90-days prior to the pandemic. This deal with Warner Bros. effectively cuts down the time AMC must feature new films. It also demonstrates the increasing importance of streaming content.8. 8.AMC's retail investors also claimed that Wall Street hedge funds were manipulating their stock. These claims are fundamental to the success and viability of any future short squeeze.None of these claims have been proved true to date. Aron even debunked the notion of nefarious activities with this tweet from July 30:We don't know if there are fake shares or synthetic shares or naked short selling of AMC share. We are also unable to comment on the significant trading of derivative puts/calls. Adam Aron (@CEOAdam), July 30, 2021The momentum behind retail investor sentiment may wane if there is no evidence of wrongdoing.We're talking about an organization that, although it was profitable, had a much healthier balance sheet, and was worth more than $3.8 million, in the end. AMC's share-based dividend dilution of the past year has made that a little more than $7 per share. A share price of around $5 would be sufficient to address the many issues AMC faces and the lackluster answers regarding how it will solve them.
