AMC Entertainment (NYSE:AMC) announced on Mar. 15 that it was investing $27.9 million in Hycroft Mining Corporation (NASDAQ:HYMC), owner of the Hycroft gold and silver development in Northern Nevada. AMC stock gained almost 7% on the news.

If you missed the humor behind the headline, it is a play on words used by the three parties involved to describe their little venture. 

Here is the actual headline:

Hycroft Mining Announces $56 Million Equity Investment From Renowned Precious Metals Investor Eric Sprott and AMC Entertainment

Yes, it is true; Eric Sprott has a long and sometimes less-than-illustrious career in mining investments. However, AMC has no history in mining that I know of. 

This is not the diversification I thought about last September when I wrote about the company’s lack of revenue streams beyond ticket and concession sales. Not even close.

While the Meme-stock crowd is probably eating this up, serious shareholders should be screaming bloody murder. Instead, this is an affront of capital allocation on a massive scale. This will not end well for Chief Executive Officer (CEO) Adam Aron and the company board. Here is why.

What do You Get With AMC Stock Investment?

A 21.8% stake in a gold and silver development. What does AMC get for its $27.9 million investment? 

According to the press release, 23.4 million Hycroft units consisting of one common share valued at $1.193 and one common share purchase warrant exercisable within five years at $1.068. 

As I write this, HYMC looks to open at $1.61 per share, which means AMC is sitting on approximately $22.44 million in unrealized gains in just one day. Not a bad payday. However, it is unlikely to sell. At least, Aron’s comments would lead one to believe this to be the case:

“To state the obvious, one would not normally think that a movie theatre company’s core competency includes gold or silver mining. In recent years, however, AMC Entertainment has had enormous success and demonstrated expertise in guiding a company with otherwise valuable assets through a time of severe liquidity challenge, the raising of capital, and strengthening of balance sheets, as well as communicating with individual retail investors. It is all that experience and skill that we bring to the table to assist the talented mining professionals at Hycroft.”

So, it appears an investment in AMC now includes a dollop of private equity. That would be great if the company didn’t have so much debt. But, alas, it had $9.2 billion in net debt as of the end of December, or 122% of its current market capitalization. 

But, hey, if the meme-stock crowd wants to think Adam Aron’s some kind of mad genius, knock yourself out.

Popcorn Won’t Be AMCs Savior

Adam Aron joined AMC in January 2016. Before that, he had numerous senior management positions with consumer-facing companies such as Vail Resorts (NYSE:MTN), Norwegian Cruise Line Holdings (NYSE:NCLH), Hyatt Hotels (NYSE:H), and several others.   

There is no question that he has the corporate pedigree to run AMC. However, he is foolish to think that selling AMC popcorn on grocery store shelves across America will solve the company’s debt problem. 

As he stated in the Hycroft press release:

“[W]e have announced a major initiative to enter the multi-billion dollar industry of retail popcorn sales, which is right down our alley. Now, we are taking AMC’s demonstrated achievement in writing the play book as to how to navigate through liquidity challenge and applying our lessons learned to another entity in Hycroft Mining. With Hycroft’s 15 million ounces of gold resources and 600 million ounces of silver resources, we believe our efforts here will be quite lucrative for AMC shareholders.”

It won’t. It can’t.

According to Million Insights, the global popcorn market will be worth an estimated $6.24 billion by 2028. North America accounts for 30% of this market. 

Existing competitors include Hershey’s (NYSE:HSY) and Conagra Brands (NYSE:CAG), and Campbell Soup Company (NYSE:CPB). The top three non-store brands in 2020 in the U.S. were Orville Redenbacher (Conagra), Pop Secret (Campbell Soup), and Act II (Conagra). 

It is not going to be easy cracking the top 10 despite the fact that it has hired a top-notch executive whose past includes a stint as senior marketing director of global brand innovation at Frito-Lay. 

The Bottom Line on AMC Stock

Adam Aron was CEO of AMC for four years before the pandemic hit. So, why did it take him so long to come up with the popcorn idea? Are investors to believe that Aron and his management team have suddenly gotten creative?

To waste $28 million on an investment that is so far outside AMC’s circle of competence begs the question of whether Aron has lost his marbles.

There are brand extensions, like popcorn, and then there is Hycroft. A total dereliction of fiduciary duty by the company, its management, and the board of directors.

AMC stock is not a buy on the latest news. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.