Stock markets as a whole trend upwards over time, yet many individual stocks still lose money for investors along the way.
There can be many reasons why a stock goes down, but one that stands out to me is when a company loses market share and consequently doesn’t have the resources to compete any longer. This leads to weak business fundamentals, and often share-price declines.
Here are two entertainment stocks I think are in weak positions, and which I’ll therefore never consider buying for my portfolio.
AMC Entertainment Holdings
AMC Entertainment Holdings (NYSE:AMC) is the largest cinema chain in the world. It operates numerous multiplexes, including the Odeon brand in the UK. The stock went on a truly astonishing rise in 2021 as it was caught up in the meme-stock frenzy. From a low of around $2 in December 2020, its shares shot all the way to $59 just six months later, before subsequently losing 60% of their value.Â
The main reason I wouldn’t buy AMC Entertainment is because I see the cinema industry continuing to be disrupted by streaming services such as Netflix and Disney. The company recently revealed that customers are spending less on snacks and beverages than they were before. If we enter a global recession, I don’t see this trend reversing. Plus, the company now has around $5.5bn worth of debt on the balance sheet!
Some investors may still like the stock because they believe that the cinema experience can never be replicated at home. However, I would argue that modern televisions and projectors — which are increasingly large, with surround sound systems and ultra-high definition — are more than a match for the big screen over the long term. Why go to the cinema when the cinema has essentially come to us in our own front rooms?
ITV
ITV (LSE:ITV) is the oldest commercial television network in the UK. The business is consistently profitable.
The company revealed its operating profit for 2021 was up 46% to £519m. That’s an impressive figure, I have to admit. And the shares do pay a dividend yield of 7%, so there are reasons for me to consider buying the stock.
The company has announced that it intends to spend £1bn a year on content for ITVX, its revamped streaming offering. The service will be free if you can put up with advertisements, otherwise you’ll have to subscribe. ITV shares dropped some 30% after this announcement.Â
The main problem I see with ITV is that it is in direct competition for eyeballs with Apple, Netflix, Disney, YouTube, Amazon, social media and a wide range of gaming platforms. The strength and depth of this competition is the reason I won’t be buying this stock.
ITV does make some good content, but I’m sceptical that people will pay for a streaming service that’s traditionally been free. I also don’t think it has the budget or strength to successfully compete with the deep-pocketed giants of the streaming world already mentioned. In fact, I wouldn’t be surprised if ITV is soon swallowed up by one of them.