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AMC Stock: Is It A Buy Now? Here’s What AMC Entertainment Fundamentals, Stock Chart Say

Going to the movies is fun and exciting again. But can it match the truly mind-bending action of AMC Entertainment (AMC)?




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Starting the year 2021 at 2 a share, AMC stock skyrocketed 36-fold to an all-time high of 72.62 on June 2 that same year. (Those prices are unadjusted for Thursday’s 1-for-10 reverse stock split.)

Then came 2022, a brutal year for meme stocks.

AMC stock started that year at 27.20 (before the reverse split) and ended at 4.07, a miserable loss of 85%.

During summer of this year, AMC shareholders had reason to look forward to another rebound. However, some key changes in the capitalization of the stock led to a massive decline during August and September.

AMC shares are enjoying nice gains on Thursday, the penultimate trading day of 2023, rising 4% to 6.41. An hour into the trading session, volume has jumped 109% higher than its average level over the past 50 sessions.

A Terrible 2023 For AMC Stock

Still, heading into the final days of 2023, AMC stock has cratered nearly 79% for the year. At Wednesday’s close of 6.16, shares have fallen 37% and 7% in November and December, respectively, vs. gains of 9.1% and 4.4% by SPDR S&P 500 ETF Trust (SPY).

Quarterly results also boost a stock’s volatility. And AMC stock has been no exception.

After the company reported third-quarter results on Nov. 8, shares dropped more than 25% for the week in accelerating turnover.

AMC Entertainment posted a third-quarter net loss of 9 cents per share amid a healthy 45% rise in sales to $1.41 billion. According to Yahoo Finance, analysts on consensus expected a net loss of 27 cents and $1.23 billion in sales.

Growth investors benefit in a big way if they understand how well a stock can perform vs. a key benchmark. As for AMC stock, IBD’s relative strength line, which graphs a stock or ETF’s day-to-day performance vs. the S&P 500, plunged since Aug. 14. This means AMC has sharply underperformed the S&P 500, especially since mid-August.

AMC has seen its market value plummet to $1.2 billion, according to MarketSmith.

AMC Stock Today: Is It A Buy Now?

The recent drop in price follows a 1-for-10 stock split in late August.

So, is AMC stock a buy now? Or is it a sell?

This story examines fundamental, technical and fund ownership factors to determine if the Leawood, Kan., company with 950 theaters and 10,500 screens scores a good probability of making money for stock traders.

Color On The Q3 Results

The company reported net income of $12.3 million in the third quarter, a vast improvement from a net loss of $227 million a year earlier. AMC also said it achieved diluted earnings of 8 cents a share vs. a net loss of $2.20. Adjusted EBITDA jumped to $193.7 million from a negative $12.9 million a year ago.

Cash and cash equivalents stood at $730 million as of Sept. 30.

CEO and Chairman Adam Aron noted that the Q3 success “came at a time when our attendance at the domestic box office in the quarter was still 16% below comparable 2019 levels.” Aron cited the revenue contribution per patron jumped 30% vs. 2019 levels.

Aron also highlighted actions including closing marginally performing movie theaters, opening higher-revenue new cinemas, and a “continued focus to manage expenses in a challenging inflationary environment.”

Taylor Swift Mania Moves To AMC Theaters

During premarket trading on Aug. 31, AMC stock rose more than 6% after the company announced it will begin showing “Taylor Swift: Eras Tour” four times each day from Thursday through Sunday at all of its locations. The movie launched officially on Friday the 13th. Ticket prices range from $19.89 for adults plus tax, and $13.13 for children and seniors.

“In anticipation of the first day of advance ticket demands, AMC has bolstered its ticket server capacity to handle traffic at more than 5 times the current record for the most ever tickets sold in an hour,” AMC said in a news release. On Sept. 1, the company reported that pop music icon Taylor Swift’s concert film shattered records for single-day ticket sales revenue at $26 million.

Indeed, ticket sales have been robust.

MarketWatch reported in early December that since the Oct. 12 debut, the Swift concert film has grossed more than $178 million worldwide, quoting research by IMDbPro’s Box Office Mojo.

Meanwhile, the company began showing “Renaissance: A Film by Beyonce” globally on Dec. 1. That week, the stock showed a little boost, at one point rallying more than 9% in heavy volume to 7.54. But AMC has since cooled off.


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Share Offering News Crushes AMC Stock

Despite the initial news of the Taylor Swift movie showing, AMC stock still cratered more than 71% in August. It marks the worst drop in a single month for AMC stock, deeper than even the 49.5% drubbing it took during the month ended March 2020.

AMC shares plunged another 36% in September to 7.99. The 33% gain in October was pleasant to see, but AMC stock has virtually given back all of that rebound in November.

Over a two-day period on Sept. 6-7, the stock fell a combined 43% after the company announced a plan via a filing to the Securities & Exchange Commission to sell up to 40 million in additional common shares.

Volume skyrocketed to 84.9 million shares during the Sept. 6 sell-off — a clear sign that institutions unloaded shares. Turnover jumped to the highest amount so far this year and almost eight times the stock’s average turnover over the past 50 sessions.

Ahead of the offering, the company showed 158.4 million shares outstanding. A new share offering certainly dilutes the stock. On Sept. 14, shares broke a three-day winning streak on news that the company completed the offering sale at an average price of $8.14 per share. That raised $326 million.


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AMC Stock Today: APEs Conversion Whacks Shares

On Aug. 14, the stock cratered more than 35% to 29.91 on news the Delaware Chancery Court approved the company’s revised plan to convert its preferred equity units, nicknamed “APEs.” AMC CEO Adam Aron described it as a “terrific relief,” MarketWatch reported. But shares likely plunged on the dilution effect that the conversion brings.

The company on Aug. 18 issued a new 8-K filing to the SEC with details on the conversion of the APEs. The conversion resulted in the trading of a single class of AMC shares and the completed 1-for-10 reverse split of common shares.

On Aug. 24, trading in AMC stock reflected the 1-for-10 reverse stock split. That is, a holder of 10 shares of AMC now owns just one share, but the share price got multiplied by 10. The action, for now, has not stopped recent bleeding in shares.

According to newly updated data on a MarketSmith chart, the stock now holds a revised float of 196.4 million freely traded shares and 198.4 million shares outstanding. However, these numbers may very well rise. In an Aug. 24 SEC filing, AMC Entertainment said it would register 6.9 million shares to settle stockholder litigation as noted later in this story.

The latest slide marked the stock’s lowest closing prices since late January of 2021, when the bubble-like buying rush of meme stocks began. From its mid-July peak of 54.97, AMC stock has fallen more than 85%.

The current year initially saw a much better start for AMC. But after more than doubling from its year-end close during the first two months of 2023, shares slid hard after the company said March 14 that 87% of voting shareholders approved a plan to conduct the reverse split and the conversion of APEs into common stock.

 


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A Strong Start In The Third Quarter

When it reported second-quarter results back in August, the company also highlighted that Q3 was “off to an explosive start” with big hits in the movies “Barbie,” “Oppenheimer,” “Mission Impossible: Dead Reckoning Part I,” “Sound of Freedom,” and others. July turned in the highest monthly revenue in the company’s 103-year history.

Barron’s reported in August that B. Riley analyst Eric Wold estimates “box office revenues per screen for AMC recovered to 93% of 2Q19 levels vs. an industry recovery to 82% of 2Q19 levels.” Wold rated the stock at neutral with a 4.50 price target.

Keep in mind that blockbuster movies or TV shows don’t necessarily lead to an equally sizable windfall for the theater operators.

Robert Marich, author of “Marketing to Moviegoers,” told IBD that “profit excess from ticket sales of blockbuster movies goes disproportionately to Hollywood distributors, because theater percentage of ticket revenue diminishes on a percentage basis.”

Wall Street currently sees AMC posting a net loss of $1.55 a share this year (down from $3.02) and a net loss of $1.65 in 2024, down mildly from an earlier estimate of -$1.82. In 2022, AMC posted a full-year adjusted net loss of $6.95 a share vs. a net loss of $11 in 2021, according to MarketSmith data.


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The Preferred Units Puzzle

Earlier, in a filing issued on July 31 to the Securities and Exchange Commission, Aron made it abundantly clear that the company and shareholders would benefit from the conversion plan of APE preferred equity units.

“To protect AMC’s shareholder value over the long term, we must be able to raise equity capital,” Aron wrote in an open letter.  That is especially the case now with the added uncertainty caused by the writers and actors strikes, which could delay the release of movies currently scheduled for 2024 and 2025.”

“If we are unable to raise equity capital, the risk materially increases of AMC conceivably running out of cash in 2024 or 2025, or of AMC being unable to satisfactorily refinance and stretch out the maturity of some of our debt (which is required of us beginning as early as 2024),” Aron added.

In March, the company had received the green light from a shareholder vote to convert its APE units into common stock.

“If implemented, AMC should have an ability to raise a significant amount of equity capital in the months and years ahead. Winning these shareholder votes by such a lopsided margin is a powerful vote of confidence to allow AMC to raise equity capital, reduce debt, strengthen our balance sheet and continue our transformation,” Aron said in a March 14 news release.


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Will The Shorts Cover AMC Stock This Year?

Even though an epic short squeeze rally hit overdrive in January 2021, AMC stock still attracted short sellers during the summer of that year. Now, after a bruising decline since the spring of 2021, have the shorts let up?

Let’s first revisit the hyper-fast run during the meme stock boom of 2021. Prior to the giant gain on June 2, 2021, over just five sessions of trade (May 24 to 28), AMC obliterated the short sellers by rising as much as 203%. In the week ended June 4, AMC stock almost finished up 100% or more for a second straight week. Incredible.

In January 2021, WallStreetBets chat-room traders on Reddit joined in unison in buying shares and bullish call options in AMC stock. They did the same in a band of other companies that had been heavily sold short and struggling.

According to MarketSmith, short interest — shares sold short by individual and professional investors — has rebounded to 22.5 million shares, or 14% of the stock’s float of 156.8 million shares. In early October, the short interest ratio was at 14%.

Strong future profits could lead to increasing accumulation by large funds and other institutional investors. A powerful rebound could force short sellers to cover their positions, helping to propel shares even higher.

When a stock shows a high level of short interest and is getting bid up, you can almost count on a chain reaction of buying to occur. Why? Short sellers, betting on a decline in the stock, at some point may have to do a sudden about-face. They cover their short position by buying back shares.

The NYSE publishes data on short sale positions twice a month. Plus, the short coverage ratio can be skewed by dramatic changes in daily share turnover. The above data also does not consider any shares that may have been sold short in dark pools.


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Key IBD Ratings

AMC’s ratings in IBD Stock Checkup are still showing bearish tints.

They include a much improved 70 Earnings Per Share Rating on a scale of 1 to 99, up sharply from 23 in recent months. Prior to the Q4 report, AMC’s EPS score stood at 42.

Yet a 19 Composite Rating on a scale of 1 (wizened) to 99 (wizardly) in recent days remains desperately low. It stands well below a score of 76 in February. When choosing growth stocks for the biggest potential gains based on the key elements of IBD’s growth stock investing paradigm, focus on those with a Composite Rating of 90 or higher. Shooting for a 95 or higher, particularly at the start of a new bull market, is even better.

During the first quarter of this year, AMC’s movies industry group had ranked highly among IBD’s 197 industry groups in terms of six-month price-weighted performance. The group had risen to as high as 20th during the summer; in late December, the group has drifted lower to 79th.

Check the daily price-weighted performance of all IBD industry groups, plus rankings based on six-month performance, at IBD Data Tables.

AMC Stock: Relative Strength Sinking Again

In August last year, AMC held a very respectable 96 Relative Strength Rating. This score means AMC stock had outperformed 96% of all stocks in the IBD database over the past 12 months. And the 3-month RS Rating at the time zoomed to a highest possible 99, according to MarketSmith data. These two ratings now stand at 3 and 2, respectively. A 1 RS score is the worst possible.

The RS Rating runs from 1 to 99; for investors selecting top growth stocks, the higher the RS Rating, the better the stock in general.

Watch to see how the RS Rating changes in the coming week.

The Accumulation/Distribution Rating has fallen to a mildly negative C- grade on a scale of A to E. This rating analyzes 13 weeks’ worth of price-and-volume action. A grade of C+ or higher points to institutions, on net, accumulating shares.

Meanwhile, mutual funds owning a piece of AMC stock have dropped from 686 at the end of 2021 to as low as 272 as of the end of the third quarter this year, according to MarketSmith.


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Stock Action In 2021 Vs. 2022

Back in May 2021, this story suggested watching how AMC stock handles potential upside resistance near 20. In fact, the action since that incredible week ended Jan. 29 molded a deep cup pattern. From that vantage point, AMC delivered a second breakout on May 27, surpassing a new 20.46 buy point with fury. (MarketSmith has a change-date function that makes it easy to look at historical charts.)

To get this ideal entry in a cup without handle, simply add 10 cents to the cup’s left-side high — 20.36. On May 27, shares rifled past the 20.46 entry. For a while, AMC refused to look back. Still, with gains of as much as 501% in just two weeks, it made sense to lock in at least partial profits.

For a few days in August 2022, AMC tried to cross a nearly 12-month trendline that connects the September 2021 peak (32.43, adjusted for a stock split) with lower highs in November 2021 (28.23) and early April 2022 (21.09). For the very aggressive trader, this trendline breakout near 15 offered an uber-speculative entry. But the rally attempt fizzled fast.

As always, control your risk. Not all breakouts work, especially when the stock market uptrend goes under pressure or into a correction. The best time to buy? When IBD notes the market in a confirmed uptrend, it signifies that buying demand is healthy among institutional investors.

In stock investing, seek the wind at your back, not in your face.

AMC Stock In 2023: Is It A Buy Now? Or A Sell?

Amid the latest plunge, AMC sits more than 98% below its split-adjusted high of 393.65 set on June 2, 2021. So at the current price level, it does not yet trade at an IBD-style entry point.

Watch for a new bullish chart pattern will form. And AMC will definitely need weeks, if not months, to build the right side of that new base in bullish fashion.

An excellent set-up means the big boys and girls on Wall Street are more inclined to buy and hold shares, not dump them. Once a strong chart pattern has been established, an IBD-targeting breakout offers traders the best opportunity to reap gains at the start of a potential big run.

So at this point, AMC stock is not a buy. At some point, a cup base will form, but it’s too early to tell.

Unfortunately, shares have nose-dived below this year’s earlier low of 33.27.

Shares need to do these four things now:

  1. Rise above the 10-week moving average — currently near 7.49 — and stay above it for a significant time. This hasn’t happened yet in 2023 so far.
  2. Overcome a large overhead supply of disgruntled holders ready to sell if the stock climbs back to around 10 to 14 a share. The July near-term high of 54.97 had emerged as the left-side lip of a super-deep bottoming base. That price is extremely far away.
  3. Present price-and-volume action that signals heavy accumulation by fund managers, not distribution.
  4. Rebound above its still-falling 40-week moving average, which has now sunk below 30.

One More Key

Finally, after you buy any stock with solid prospects, always heed the golden rule of investing. Keeping losses small keeps you in the investing game for the long haul.

Please follow Chung on Twitter: @saitochung and @IBD_DChung

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