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.
Then came 2022, a brutal year for meme stocks.
AMC stock started the year at 27.20 and ended at 4.07, a miserable loss of 85%. Since then, AMC’s drama in the stock market today has continued.
The current year saw a much better start for AMC. But after more than doubling from its year-end close of 4.07 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 a 1-for-10 reverse stock split.
That reverse split has yet to take place.
And on Friday after the close, AMC stock jumped as much as 100% to an after-hours session high of 8.80 following a CNBC report that the deal to convert its preferred equity units, nicknamed APEs, into common shares, got rejected by a Delaware court. Dow Jones reported that the court’s Vice Chancellor Morgan Zurn rejected an earlier settlement that would have allowed the conversion to go forward, quoting Bloomberg.
At the end of extended-hours trading Friday, AMC shares held up well, trading near 7.17 — good for a 76% gain year to date.
AMC has yet to comment on the ruling.
AMC Stock Today: Is It A Buy Now?
On Friday, shares closed the regular session up 1.6% to 4.40. Quite a dramatic change from its action in June.
On June 23, AMC shares fell for a seventh session in a row, dropping 3.8% to 4.01, and marked the lowest close since January.
Meanwhile, the relative strength line, which graphs a stock or ETF’s day-to-day performance vs. the S&P 500, has trended lower. This means AMC is still underperforming the S&P 500. In recent days, the RS line is trying to bottom out.
Before Friday’s news after market hours, AMC stock saw its market value shrink to $2.2 billion on 519.2 million shares outstanding, according to MarketSmith. The float (freely traded shares) stands at 514 million.
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A New Slump After Q1 Report
The first half of May proved strong. On May 4, AMC made its highest close since March 7. At one point, the small cap’s year-to-date gain reached 44%. But AMC stock let those gains slip away again. Notice too how it slumped below the 50-day moving average again. Unfortunately, that bespeaks bearish price action as well.
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.
In late April, AMC’s recent rise back above this key technical level had signaled a potentially bullish shift in the balance of demand vs. supply. After all, leading growth stocks tend to rally above the 50-day moving average (drawn in red in the accompanying daily chart), as well as pull the 50-day line higher.
In early May, the stock reported a net loss of 13 cents in the first quarter of 2023. A year ago, AMC suffered a net loss of 26 cents a share. Revenue jumped 21% to $954.4 million. The company saw food and beverage spending per patron of $6.90 globally and $7.99 in the U.S.
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Sales Continue To Recover
CEO Adam Aron noted the first-quarter results as the strongest for a first quarter of the year in at least four years. “The recovery in the European box office easily surpassed 2022 by some 29%, totaling more than $1.7 billion,” Aron noted. He added “The Super Mario Brothers Movie” has helped the second quarter get off to a marvelous start with ticket sales surpassing $1 billion worldwide.
In a MarketWatch story on May 9, Macquarie Research analyst Chad Beynon noted a “road to recovery getting better with box-office strength.”
“We expect AMC’s business to grow with the market and benefit from strong strong flow-through given significant fixed costs in the business,” Beynon added.
According to its Q1 news release, AMC also saw a $2.3 million fall in the estimated fair value of its investment in shares of gold mining company Hycroft Mining (HYMC). The stock trades at 37 cents.
AMC is likely to report second-quarter results on or around Aug. 10. In 2022, the company revealed Q2 numbers on Aug. 4 that year.
On July 20, the company announced the end of a pilot program to charge higher ticket prices for seats in its so-called “Preferred Sightline” sections in participating theater locations, even though more than three out of four AMC Stubs members who previously bought tickets in these sections continued to select such seats.
APE Saga Continues
On April 4, shares tanked 23% to 3.91 in heavy trading following news that the company settled a shareholders lawsuit over AMC’s plan to convert its “APE” equity preferred units into common shares. But two days later, AMC stock barreled ahead 19% in late-afternoon trading on news that a judge in the Delaware Chancery Court rejected the settlement.
In March, the company had received the green light from 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,” CEO Aron said in a March 14 news release.
Yet retail investors could see a dilution in the value of their shares overall if the plan were to go forward.
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April 3 Settlement Rocks AMC Stock
The stock got knocked hard after the company reached an agreement on April 3 with a group of common stockholders in AMC. The plaintiffs will be granted one share of common stock for every 7.5 shares held following the reverse stock split in connection with a planned conversion of APE preferred units into common shares.
Any fractional shares owed by AMC Entertainment will be paid in cash.
In a news release issued by law firms Bernstein Litowitz Berger & Grossmann, Grant & Eisenhofer, Fields Kupka & Shukurov, and Saxena White, the settlement will preserve more than $100 million of common stockholders’ stake in the company. That value will fluctuate based on market trading. This agreement may also speed AMC’s ability to pay down debt. It also comprises of 6.9 million post-reverse split shares.
Holders of AMC’s class A common shares received one APE for every share of AMC owned on Aug. 15 last year. At the time, management warned investors that AMC stock would feel the impact of what has been dubbed the “APE-split.” Those preferred units plunged after their Aug. 22, 2022, market debut.
In the first quarter of this year, the company said it raised gross proceeds of $80.3 million through the sale of 49.3 million APE units. In Q2 so far, AMC said it raised another $34.2 million before commissions and fees after dumping 21.2 million APE units. As a result, currently no APEs are available to be issued under a September equity program approved by the board.
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Q4 Results
On Feb. 28, AMC reported a fourth-quarter adjusted net loss of 14 cents per share. That well exceeded the 5-cent-per share deficit a year earlier, yet beat Wall Street’s expectations for a 21-cent loss. Sales fell 15% to $990.9 million, yet topped the consensus view. That snapped a six-quarter streak of beefy top-line gains.
The company noted that industry-wide box office ticket sales likely won’t return to pre-Covid pandemic levels until 2024 or 2025 at the earliest. 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.”
AMC posted a full-year adjusted net loss of 69 cents a share vs. a net loss of $1.25 in 2021. The company generated $57.5 million in operating cash for the fourth quarter. Available liquidity on Dec. 31 reached $843 million.
Wall Street currently sees AMC posting a net loss of 36 cents a share this year and a net loss of 22 cents in 2024, down from 24 cents.
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 grown to 9 times AMC stock’s daily average volume of 16.6 million shares. That totals 149 million shares. This means short interest has grown substantially and remains heavy. It tops 29% of the stock’s float of 514 million.
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 showing bearish tints.
They include a 23 Earnings Per Share Rating on a scale of 1 to 99, up from 12 last week. Prior to the Q4 report, AMC’s EPS score stood at 42.
Meanwhile, a 17 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 CAN SLIM investment 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 cooled off in April, ranking 87th out of 197 industries, but has since risen to as high as 9th in recent months.
Check the daily price-weighted performance of all IBD industry groups, plus rankings based on six-month performance, at IBD Data Tables.
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 ratings now stand at a very weak 8 and 7, respectively.
The RS Rating runs from 1 to 99; the higher, the better the stock in general.
Watch to see how the RS Rating changes in the coming week.
The Accumulation/Distribution Rating shows a mildly positive B 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 318 as of the end of the second 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?
AMC sits more than 90% below its split-adjusted high of 44.61 set on June 2, 2021. So at the current price level, it does not yet trade at an IBD-style entry point.
However, next week the situation could change dramatically. Watch to see if 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.
On the positive side, the recent low of 3.88 held barely above a January low of 3.77. Good. But will AMC keep marking higher lows in the coming months?
Shares also need to do these four things now:
- Rise above the 10-week moving average and stay above it. This has yet to happen in a meaningful way so far in 2023.
- Overcome a large overhead supply of disgruntled holders ready to sell if the stock climbs back to around 8 a share. The February near-term high of 8.53 may emerge as the left-side lip of a deep bottoming base.
- Present price-and-volume action that signals heavy accumulation by fund managers, not distribution. On the positive side, AMC has not shown a down week in above-average turnover since the week ended April 7.
- Rebound to at least 10 a share, and ideally above its falling 40-week moving average, which has sunk well below 6.
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.
Bill O’Neil, Legendary Investor And IBD Founder, Dies At 90
Please follow Chung on Twitter: @saitochung and @IBD_DChung
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