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. That price is unadjusted for Thursday’s 1-for-10 reverse stock split. Then came 2022, a brutal year for meme stocks.
AMC stock started the year at 27.20 (before the reverse split) and ended at 4.07 , a miserable loss of 85%.
AMC Stock Today: APEs Conversion On Track
Since then, AMC’s drama in the stock market today has continued.
On Aug. 14, the stock cratered more than 35% to 3.39 — an 18-month low — 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 are likely plunging 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 will result in the trading of a single class of AMC shares and a 1-for-10 reverse split of common shares. Plus, the APEs ceased trading on Friday and converted into common shares.
Barron’s reports that it’s possible for warrants could also get converted into common shares, which would boost the total share count overall.
AMC common shares on Monday dropped sharply for the sixth session in a row, sinking nearly 11% to a reverse split-adjusted price of 11.07. Volume soared more than 300% the stock’s average turnover over the past 50 sessions.
On Thursday morning, 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 MarketSmith data, the stock holds a float of 519.2 million freely traded shares and 519.2 million shares outstanding. However, these numbers should 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.
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This past week’s slide marked the stock’s lowest close since late January of 2021, when the bubble-like buying rush of meme stocks began. AMC stock has fallen 59% for the week.
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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On July 24, AMC stock jumped more than 35% and reached as high as 54.97, adjusted for the reverse split. Volume soared more than 11 times its average pace over the past 50 sessions.
The stock also briefly ramped above its 200-day moving average, drawn in black on a MarketSmith chart, for the first time since February.
But AMC stock pulled back hard again. Shares also dipped back below the 200-day line, a key long-term technical level.
AMC Stock Today: Is It A Buy Now?
Meanwhile, the relative strength line, which graphs a stock or ETF’s day-to-day performance vs. the S&P 500, has plunged again. This means AMC is still underperforming the S&P 500. However, in recent weeks, AMC stock’s RS line is rising sharply and trying to bottom out.
AMC recently saw its market value rebound to $5.74 billion on 519.2 million shares outstanding, according to MarketSmith.
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.
Q2 Earnings Out
On Aug. 8, the company posted a net loss of a dime a share, down from a net loss of 90 cents in the year-ago quarter, based on revised figures following the 1-for-10 reverse split, according to MarketSmith. Sales rose 16% to $1.35 billion.
Meanwhile, adjusted EBITDA grew 71% to $182.5 million. Operating cash flow expanded by $63.2 million to a total $13.4 million; on a non-GAAP basis, it generated $99.8 million in operating cash. This helped boost the company’s liquidity to $643.4 million, including $208.1 million of undrawn capacity under a revolving credit facility.
CEO Adam Aron, in a news release, noted that AMC theaters around the globe welcomed more than 66 million guests in the quarter, the highest level since Q4 of 2019.
“One area that has far exceeded pre-pandemic norms has been per-patron revenue,” Aron said. The firm generated revenue of $7.36 per patron from food and beverages, “within a penny of our all-time high watermark. Considering the substantial operating margin of our food and beverage business, this is contributing meaningfully to our improving profitability,” he added.
A Strong Start In The Third Quarter
The company highlighted that Q3 is “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 earlier 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 $2.51 a share this year and a net loss of $1.85 in 2024. In 2022, AMC posted a full-year adjusted net loss of $6.10 a share vs. a net loss of $11 in 2021.
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AMC Sales Continue To Recover
In early May, the stock reported a net loss of $1.10 in the first quarter of 2023. A year ago, AMC suffered a net loss of $1.90 a share, according to revised numbers on MarketSmith. 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.
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.
On May 4, AMC stock posted 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.
Yet since July 24, shares have retaken this important technical level.
Further gains could point to a 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.
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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.
Yet retail investors could see a dilution in the value of their shares overall if the plan were to go forward.
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. In the agreement, the plaintiffs would receive 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.
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 would fluctuate based on market trading.
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.”
The next day on April 4, AMC’s common shares tanked 23% 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 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. During the second quarter, AMC Entertainment raised another $34.2 million before commissions and fees after dumping 21.2 million APE units.
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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 — currently totals 6.7 times AMC stock’s daily average volume of 22.6 million shares. Average volume fluctuates often. Short interest has now reached 151 million shares, or 29% of the stock’s float of 514 million — still a heavy amount.
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 much improved 60 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.
Meanwhile, a 21 Composite Rating on a scale of 1 (wizened) to 99 (wizardly) in recent days is falling again and 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 has cooled off to 35th in recent days after rising to as high as 20th during the summer.
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 1, the worst possible. Both scores have fluctuated tremendously in recent weeks.
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 shows a worst possible E grade on a scale of A to E. But this rating may fall even more. 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 294 as of the end of the second quarter this year, according to MarketSmith.
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 97% 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.
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.
Unfortunately, shares have dived below this year’s earlier low of 33.27.
Shares need to do these four things now:
- Rise above the 10-week moving average and stay above it. This hasn’t happened yet in 2023 so far.
- Overcome a large overhead supply of disgruntled holders ready to sell if the stock climbs back to around 35 to 45 a share. Also, the July near-term high of 54.97 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 bright side, AMC has not posted a sharp loss in heavy weekly volume since early April.
- Rebound above its still-falling 40-week moving average, which has sunk to 42.
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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