“We’re all smiles today, but by no means are we out of the woods yet,” warned AMC Entertainment (NYSE:AMC) CEO Adam Aron on Tuesday’s Q4 earnings call. “Our success could literally vaporize in an instant if we misstep.”

The 68-year-old Aron might as well have been talking about AMC shareholders. Prices of the meme stock initially spiked 5% on better-than-expected financial results, then slumped 13% almost immediately after. Shares have lost around 25% of their value since Tuesday morning, and almost 75,000 additional AMC options will expire worthless on March 3 from the decline.

Any mutual fund manager owning AMC shares would have lost their job by now.

Yet, the adverse price action hides that America’s largest cinema company is recovering. In October 2022, I wrote that AMC Entertainment could one day become the last theater chain standing. Its Q4 figures show it remains squarely on that path.

Good News Is Bad News for AMC Stock

AMC’s Wednesday price slump had little to do with its Q4 earnings release. Markets were already expecting an 18% revenue decline, driven by fewer blockbuster releases in October and November last year. The 15% revenue drop was welcome news.

AMC’s cash flow also came in far stronger than many expected. Against all odds, the firm consumed only $33.3 million for operating activities and closed the quarter with $631.5 million in the bank. Lower screening costs and better concession sales helped fuel the better-than-expected outcome.

Instead, AMC has become a typical case of “buy the rumor, sell the news.” Since Q3 2021, strong earnings results have generally resulted in downward price moves, while negative earnings results have done the opposite. In Q4 2021, for instance, a stunning 7% revenue beat saw shares decline 16.7%. Conversely, Q3 2022’s muted earnings figures sent shares soaring 41%.

Some might point to the options market, a world where “up seems down, and down seems up.” In this warped reality, positive news might cause long call holders to close out positions, forcing market makers to sell their hedging positions. That drives down the underlying stock’s price and might explain why AMC stock first rose on Tuesday afternoon before falling.

But I’m not convinced that’s the case. Given AMC’s retail interest and relatively small trade sizes, it’s far more likely that the stock’s wild swings were caused by speculators piling into AMC’s stock and call options in the days before earnings…

…and then leaving again once earnings were released.

The Fundamental Story Remains Intact

Nevertheless, AMC’s Q4 results come as welcome news to long-term shareholders. Its Q4 10.7% domestic revenue decline was offset by higher domestic admission prices and concession sales of 6.2% and 7.7%, respectively. The average ticket price at AMC now outstrips rival Cinemark’s by over 20%.

AMC’s management also gave a reasonably strong 2023 outlook. The company expects Hollywood to release 75% more major movie titles than it did in 2022, which could push revenues up 14% to $4.4 billion in the coming year, according to sell-side estimates. That’s only 19% below 2019’s figures.

Most importantly, the effects of Regal owner Cineworld’s (OTCMKTS:CNNWQ) bankruptcy in September 2022 are beginning to show. AMC’s film exhibition costs now sit 150 basis points lower than they did in pre-pandemic times — a sign that studios are giving up on squeezing out higher take rates. AMC’s 2026 bonds — its largest tranche of liabilities — now trade almost 50% higher than they did at the start of the year. Credit investors now only give around a 20% chance that AMC will default on that debt.

In other words, AMC’s Adam Aron is grounding his firm with solid fundamentals.

What Is AMC Stock Worth?

AMC’s shares, however, are quite the opposite of “grounded.”

The company’s enterprise-to-sales ratio, a metric used to gauge indebted, unprofitable firms, now sits at around 2.1x, a 30% premium to long-term averages. And the firm’s forward EV/EBITDA multiple, a more stringent metric, shows that AMC shares could be 230% overpriced.

The company’s APE shares also add a layer of complexity. If these preferred shares eventually convert to ordinary AMC ones, valuation models must divide earnings by 1.45 billion shares. That produces a far different figure than using the roughly 517 million common shares outstanding.

Still, we can make some educated guesses of what AMC is worth.

If AMC’s margins eventually revert to pre-pandemic levels, shares should trade somewhere between $1.80-$2.35. That assumes that APE preferred shares eventually convert into common stock and the firm remains a going concern.

In a more bullish case, we’ll assume that AMC’s improved bargaining power with movie studios pushes net margins consistently into the 5%-10% range and that no more dilutive issuances are needed. That would essentially double AMC’s value into the $3.60-$4.70 area. And we’re not even counting AMC’s popcorn deal with Walmart (NYSE:WMT) yet! (Just kidding, these consumer-based sales will do little to budge the bottom line).

In either case, AMC’s current $6.00 share price makes it a bad deal. A scan of options prices suggests that market makers believe AMC is worth closer to $4 per share, and the company’s poor (though improved) credit prices suggest a similar downside.

How to Profit From AMC Stock

In December, buzz began to spread about the APE/AMC conversion trade. As a reminder, there was a theory that investors buying the lower-priced APE shares and shorting the higher-priced AMC ones would profit as the two units eventually converged.

But as I outlined in a recent article, making money from such fancy footwork is virtually impossible in practice. High short fee rates — and high put options prices — make this arbitrage deal a dud.

Still, risk-seeking investors might be able to profit from buying AMC’s preferred APE shares at $1.70 or below. In the expected case, these stub shares could become worth 30%… 50%… even 150% higher than where they currently stand. And in the worst case, you’re only losing $1.70 per share on a risky penny stock.

It’s certainly not the easiest way to make money. But for those looking for a gamble, APE shares are a far more attractive bet than AMC’s common in this turnaround story.

On the date of publication, Tom Yeung did not hold (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.