Going to the movies is fun and exciting again. But can it match the mind-bending action by AMC Entertainment (AMC)? Starting the year of 2021 at 2 a share, AMC stock skyrocketed more than 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. Since then, AMC's drama in the stock market today has continued.
AMC stock started 2022 at 27.20 and ended the year at 4.07, a miserable loss of 85%. The new year saw a much better start for AMC so far. But shares, after quickly more than doubling from its year-end close of 4.07, have made another deep slide following news on March 14 that 87% of voting shareholders approved a plan to conduct a 1-for-10 reverse stock split.
So at this, point, 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 940 theaters and more than 10,500 screens scores a good probability of making more money for stock traders.
The company also received the green light from shareholders to convert its APE preferred equity units into common stock.
Holders of AMC's class A common shares received one APE for every share of AMC owned on Aug. 15. At the time, AMC's management made it clear to investors that AMC stock would feel the impact of what has been dubbed the "APE-split." Those preferred units have plunged since their market debut on Aug. 22.
According to MarketSmith, AMC now has 517.6 million shares outstanding. This new action means value dilution for common stock holders.
On March 14, AMC stock slumped 15% in heavy volume. That marked the biggest single-day drop in 2023 so far. On Tuesday, a strong rebound lifted shares up as much as 35% year to date.
But as the daily chart shows, AMC has yet to reclaim the 50-day moving average, a key technical level. A rise back above the 50-day line may signal a positive shift in the balance of demand vs. supply. Plus, leading growth stocks rally above the 50-day moving average, and they also pull the 50-day line higher.
The hot January rebound cooled off after AMC announced in early February a new value-pricing plan named Sightline at AMC, with ticket prices based on the viewer's sightline of the movie screen within the auditorium. It sank below the 50-day moving average, a technical sign of weakness.
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On Feb. 28, AMC reported a fourth-quarter adjusted net loss of 14 cents per share. That's a much larger loss than the 5-cent-per share deficit a year earlier, yet it still beat Wall Street's expectations for a 21-cent loss. Sales also beat the consensus view at $990.9 million, down 15% year over year. 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.
AMC posted a full-year adjusted net loss of 69 cents a share vs. a net loss of $1.25 in 2021. The company achieved adjusted EBITDA (earnings before interest, tax, depreciation and amortization expense) of $46.6 million, a vast improvement from -$291.7 million the prior year. AMC generated $57.5 million in operating cash for the fourth quarter. Available liquidity on Dec. 31 reached $843 million.
CEO and Chairman Adam Aron noted that Q4 revenue per patron of $19.98 exceeded pre-pandemic levels "thanks to rising ticket prices and the consumer's continued predilection to indulge more at our concession stands in our high-margin food and beverage business."
In late December, the company agreed to sell APE units to Antara Capital at a weighted average price of 66 cents per unit. This sale would raise $110 million. AMC aims to reduce $100 million in debt due 2026 held by Antara by swapping the notes for 91 million APE units. The company also reported it raised $162 million through the sales of its APEs and reduced total principal debt holdings by $180 million.
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On Dec. 19, the cinema chain operator announced healthy box-office and food and beverage revenue during the Dec. 16-18 weekend vs. the same period in pre-pandemic 2019. AMC rode big results amid the debut of "Avatar: The Way of Water" by blockbuster director James Cameron. AMC's Odeon Cinemas saw on the Saturday during that three-day period its highest revenue for both theater admissions and food and beverage sales for a single day the entire year.
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."
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The Latest Short Sales
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?
The brokerage TradeZero reported that in the week ended Aug. 19, its clients sold 3,087 shares short at an average price of 21.52. In the week ended Nov. 18, TradeZero reported 1,070 short sales made in the stock with an average share price of 7.69. That placed AMC among the top 10 most heavily sold short stocks trading under $10 a share. AMC did not make the firm's top 10 list of short sales during all four weeks in February and in early March. Quite a change from what TradeZero saw in 2021.
Will The Shorts Cover AMC Stock This Year?
Let's go back to the prior 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.
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, often have to do an about-face. They cover their short position by buying back shares.
Yet according to MarketSmith, short interest — shares sold short by individual and professional investors — runs 3.3 times AMC stock's daily average volume of 37.7 million shares. That totals 124 million shares. So, short interest remains heavy at 24% of the stock's float, or freely traded shares, of 512.4 million.
Strong profitability in the future 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.
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
For now, AMC's ratings in IBD Stock Checkup are still showing bearish tints.
They include a 10 Earnings Per Share Rating on a scale of 1 to 99. Prior to the Q4 report, AMC's EPS score stood at 42.
Meanwhile, an 8 Composite Rating on a scale of 1 (wizened) to 99 (wizardly) is falling again and stands well below a decent score of 76 last month. Ideally, focus on stocks that show a 90 to 95 Composite score or higher.
AMC's movies industry group is beginning to slip again among IBD's 197 industry groups lately in terms of six-month price-weighted performance. The group recently ranked 49th out of 197 industries.
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
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.
In August, 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 6 and 8, respectively. The RS Rating runs from 1 to 99. So, the 3-month RS score has sharpened in recent months, and smartly above an ideal level of 80 or higher.
The Accumulation/Distribution Rating has backtracked to a 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 accumulating shares.
Meanwhile, mutual funds owning a piece of AMC stock have dropped from 686 at the end of 2021 to as low as 418 as of the fourth quarter of 2022.
Bullish Action, First Half Of 2021
From March to May 2021, AMC created a boxy cup — plenty of time for a solid cup pattern to form. This pattern produced a proper buy point of 10 cents above the cup's left-side peak of 14.54 on March 18. So in AMC's case, the correct entry stood at 14.64. AMC had to surpass 14.64 before becoming a new buy. A 20% gain on May 25, 2021, sent shares zooming past the proper buy point. The 5% buy zone went up to 15.37; the stock quickly got extended.
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.
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 of 52.79 with lower highs in November 2021 (45.95) and the end of April this year (34.33). For the very aggressive trader, this trendline breakout near 25 offered an uber-speculative entry. But the rally attempt fizzled fast.
AMC Stock In 2023: Is It A Buy Now? Or A Sell?
AMC sits 93% below its 72.62 all-time high set on June 2, 2021. So at the current price level, it does not yet trade at an IBD-style entry point. 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. Perhaps a low-priced cup base is forming, but it's too early to tell.
Yet for now, the March low of 4.06 did not undercut the January low of 3.77. 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 is no longer happening, a negative sign.
- Overcome a large overhead supply of disgruntled holders ready to sell if the stock climbs back to around 8 to 10 a share.
- Present price-and-volume action that signals heavy accumulation by fund managers, not distribution.
- Rebound to at least 10 a share, and ideally above its falling 40-week moving average, which has sunk to 8.88.
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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