Big-screen movie theater owner AMC Entertainment (NYSE:AMC) is among the most clear-cut financial victims of the novel coronavirus. With filmgoers opting to play it safe and stay home, AMC stock had horrendous share-price declines.

And yet, there’s a certain appeal to AMC stock. For instance, the share price was up by 7.5% on the afternoon of Jan. 12. Moves like this might pique the curiosity of risk-tolerant investors.

Value-focused investors might also choose to engage in some bottom fishing, so to speak. After all, the idea is to buy low and sell high, right?

The problem is that a low-priced stock like AMC is capable of going much lower. And with the company facing a major capital crisis, it might be a while before we see the true lower limit of AMC stock.

A Closer Look at AMC Stock

First of all, let’s address the idea that value investors should take an interest in AMC stock. To butcher a famous Warren Buffett quote, price is what you pay but value is what you get.

In other words, a low price shouldn’t be equated with a strong value. As I see it, a business’s value is derived from its ability to generate profits. A rough-and-ready way to measure this is through the trailing 12-month earnings per share.

For AMC, that number is approximately -$34.81. For a stock that’s trading at $2 and change, this doesn’t paint a pretty picture at all.

We can blame the onset of Covid-19, and that is undoubtedly a contributing factor here. On the other hand, AMC stock has been in a long-term decline since late 2016.

This suggests that there’s been something wrong with AMC, both the company and the stock, for quite some time.

Therefore, even as Covid-19 vaccines are being distributed to the public, there may be no swift recovery on the horizon for AMC Entertainment and its shareholders.

Only Time Will Tell?

Not long ago, AMC Entertainment CEO Adam Aron made a statement that might superficially sound encouraging. If we read between the lines, however, we might sense a hint of desperation.

After the company had raised $200 million in capital, Aron said in an interview, “We need to raise more, but we’re working hard to do that and we’ve laid out a plan and a blueprint to get there. Whether we get there or not, only time will tell.”

Aron’s position is not enviable. Part of his job is to be a hype man for the company. Unfortunately, there’s not much for him to get hyped up about lately.

“We need to raise more” sounds like an admission that AMC Entertainment is falling short of what it needs to survive. And if the company had a reliable “plan and a blueprint” to achieve solvency, then the CEO wouldn’t say, “Whether we get there or not, only time will tell.”

No Safety Net

Let’s get down to brass tacks. In order for AMC Entertainment to meet its liquidity requirement for 2021, the company will need to raise a whopping $750 million.

The math is pretty scary here. If the company has only raised $200 million, then it still has another $550 million to go.

Moreover, there’s really no safety net for AMC common stock holders if the company doesn’t raise enough capital.

By AMC Entertainment’s own admission, an inability to obtain additional liquidity “likely would result with us seeking an in-court or out-of-court restructuring of our liabilities.”

That’s most likely a fancy way of saying the dreaded B-word, “bankruptcy.” And it only gets worse from there:

“And in the event of such future liquidation or bankruptcy proceeding, holders of our common stock and other securities would likely suffer a total loss of their investment.”

In effect, the company is warning the AMC common stock holders that there’s a distinct possibility of the share price going to zero and staying there permanently.

The Bottom Line

While the AMC stock price might be low, let’s not make the common mistake of confusing a low price with a good value.

And so, will AMC stock holders end up suffering a total loss of their investments? To borrow a phrase from the CEO, only time will tell.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.