Penny stocks are shares in companies that trade for less than $5.00 per share. With a current price of $6.67, AMC Entertainment (NYSE: AMC) isn't far from that mark. And while the stock might look like a good deal, it is cheap for a reason. Let's explore why the struggling movie theater operator looks poised for more downside over the long term.

We all know the COVID-19 pandemic devastated in-person entertainment venues like movie theaters, which saw their locations closed for much of 2020 and 2021. Now that the industry is back on its feet, sales are soaring -- but profitability has been slower to return. AMC's third-quarter earnings report highlights this challenge. While revenue jumped 162% year over year to $1.17 billion, the company generated a net loss of $121.6 million mainly because its operating expenses outstripped its sales. 

But management's questionable decision to purchase a 22% stake in precious metals company Hycroft Mining is also contributing to the problem -- generating a $57.3 million investing expense (a non-cash loss) in the period. It is unclear what relation an asset like Hycroft has to AMC's core movie theater business, and the acquisition showcases a pattern of unorthodox and arguably reckless managerial decision-making at the company. Unfortunately for investors, it doesn't end there. 

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Source Fool.com