Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
2020 brought a great deal of change to the global economy, and the landscape has undergone tremendous change. Investors have poured capital into assets like the increasingly adopted Bitcoin, as governments print fiat and the dollar experiences uncertainty.
While the stock market is bullish, there is still no consensus whether this will continue in 2021. A cursory analysis indicates that the worst is behind us, even as countries establish new lockdowns. But a few corrections could be in store, and some stocks look more doubtful than that.
2 Stocks to Avoid as We Enter 2021
The stocks that we’ve listed, AMC and GameStop, are companies that have done well in the past. But the way in which we consume media has changed permanently with the pandemic. That brings into question the investment potential in the two stocks.
AMC Theatres, the biggest theatre chain in the world, is still a well-known name. But it has dropped a great deal from its peak days. Netflix, Disney, and other streaming platforms have thrived during the pandemic, despite already being popular.
With public places affected during the lockdown, entertainment venues like AMC have suffered as much as the restaurant industry. The numbers, listed below, show the degree to which the pandemic has wrought havoc on the business.
Q2 2020 saw AMC hit hardest, with several operations suspended and multiple furloughs.
Q3 2020 resulted in better performance, the company reported a net revenue loss of 9%, amounting to roughly $65 million.
Q3 logged a diluted EPS of $1.17 and adjusted EPS of $1.32.
The company is actively working with partners to reduce costs as it navigates an uncertain global outlook.
GameStop is in a similar situation as AMC, but for different reasons. The video game industry is squarely on the path towards digital purchases, with major companies focusing on that model. The company’s primary revenue comes from the sale of physical disks, which are not quite as popular as it used to be.
GameStop’s decline has been in the making before the pandemic. The last generation of consoles focused on digital stores, which results in higher revenues for manufacturers and developers. Despite new consoles being released, which positively impacted on GameStop, the long-term outlook is uncertain.
In Q2 2020, net sales were $942.0 million, down 26.7% year-over-year.
The pandemic forced the company to close 13% of its total stores.
However, global e-commerce rose 800% during the second quarter.
Q3 2020 saw net sales of $1,004.7 million, down 30.2% year-over-year.
Global E-Commerce sales increased 257%, while comparable store sales declined 24.6%.
2020 just accelerated a trend that was already happening. In addition to destabilizing the markets, the pandemic has changed the way we function as human beings. Even if the public is able to socialize outside the home, the impact of the last ten months is lasting.
And this change draws long-term doubt about stocks that are so rooted in the physical experience of various activities. It’s unlikely to completely disappear — there are many who enjoy the old ways. Both companies listed here will have to adapt in order to secure their futures.
Will digital media consumption put the nail in the coffin for physical media and experiences? Can AMC and GameStop turn it in around? Let us know what you think in the comments below.
Disclosure:Tim Fries has no positions in any of the stocks mentioned, and has no plans to initiate any positions within the 72 hours following the publishing of this article. This article expresses the opinions of Tim Fries. Tokenist Media LLC has no position in any of the stocks mentioned, and does not plan to initiate any positions within 72 hours of the publishing of this article. Please consult our website policy for more information.
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.