Is AMC Stock A Buy Or Sell Now? Here’s What Fundamentals, Stock Chart Action, Mutual Fund Ownership Metrics Say
Going to the movies is exciting. But can it match the action by AMC Entertainment (AMC)? Starting the year at just 2 a share, AMC stock has skyrocketed more than 35-fold through Wednesday’s afternoon trading.
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Given extraordinary gains over the past week and a half, however, is it perhaps time to take some profits off the table?
After all, the move in recent days carries the elements of a climax run. Consider this stat: In the prior five sessions of trade, AMC obliterated the short sellers by rising as much as 203% to Friday’s intraday peak of 36.72.
And shares are on the move again, rising more than 125% in a single session.
AMC jammed another 22% higher Tuesday after the company announced an agreement to sell 8.5 million shares at $27.15 per share to Mudrick Capital. AMC said the proceeds would go toward strategic acquisitions of “additional theatre leases, as well as investments to enhance the consumer appeal of AMC’s existing theatres.” Some of that money could also go toward paying down debt.
Matt Weller, global head of research at Forex.com, notes that Mudrick has already sold its stake in the company for a $40 million gain.
On May 24, shares even rallied despite news that its heretofore largest shareholder, China’s Wanda Group, has sold most of its remaining shares in AMC.
In effect, AMC stock has staged a strong breakout twice last week. Extraordinary.
And yet, this week’s vertical-like action is also showing a climactic move. Consider this amazing statistic: On Thursday alone, as the stock pole-vaulted 35%, more than 705 million shares changed hands. That exceeds AMC’s 450.3 million total shares outstanding by more than 56%!
Earlier this year, 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. If you were watching or trading GameStop (GME), you likely were also keeping close tabs on AMC Entertainment.
Are The Shorts Covering AMC Stock?
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.
According to the latest data analyzed by MarketSmith, the amount of short interest — or shares sold short by individual and professional investors — has jumped sharply to 0.9 times AMC stock’s daily average volume of 108 million shares, or roughly 97 million shares. That’s equivalent to 21% of the stock’s entire float — huge.
In a nutshell, short sellers had still been betting big on a future decline.
The Investor’s Business Daily team will keep close watch for any signs that short interest has dropped lately.
Since late January, AMC stock has followed an extreme zigzag path. Just two weeks after that 20.36 peak, AMC crashed. Shares fell to as low as 5.26. Then came a huge second wave of buying, sending shares back in the low teens.
Week to week, the midcap stock (pumping its market value back up to $18 billion, 450 million shares outstanding and a float of 441 million) has lately seen its overall price range narrow. That’s good as the new base formed.
So, is AMC stock a buy now?
This story examines the fundamental, technical and fund ownership factors to determine if the Leawood, Kan., company scores a good probability of making money for stock traders.
Will AMC Stock Keep Rallying In The Long Term?
Without a doubt, investors long in AMC are betting on a turnaround in fortunes.
In 2020, AMC lost $16.15 a share. Over the past five quarters, the company’s sales have shrunk 22% to as much as 99% vs. year-ago levels. Such results would normally devastate most companies.
But as movie theaters open across the country and boost seating capacity, Wall Street is banking on a tremendous rebound in the top line.
Analysts polled by FactSet offer a consensus estimate of $375 million in second-quarter sales, up 1,884% from a minuscule $18.9 million in the year-ago quarter. Then they see sales rising an additional 561% in Q3 to $790 million and 575% in Q4 to $1.1 billion.
Wall Street expects net losses of $3.33 a share for 2021, a far cry from the unadjusted $39.15 it lost last year. And the Street sees net losses shrinking further in 2022, to 96 cents a share. Both estimates have gotten revised slightly upward, a bullish sign.
With big sales expected to arrive, you can expect cash flows to greatly improve.
On May 13, AMC announced it completed an at-the-market equity program launched on April 29. The company raised $428 million in capital before fees at an average price of $9.94 per share.
Key IBD Ratings
The last time AMC paid a dividend came on March 23, 2020, at 3 cents per common share. If the company were to resume this cash payout, shareholders could attain an annualized 0.9% yield at the current price near 14 a share.
For now, AMC scores poorly in IBD’s proprietary ratings. Headed into Monday’s trading, they include a 22 Earnings Per Share Rating on a scale of 1 to 99; an E for Sales + Profit Margins + Return on Equity (SMR) Rating; and an improving 65 Composite Rating on a scale of 1 (wizened) to 99 (wizardly).
Meanwhile, AMC’s movies industry group ranks in the top half of IBD’s 197 industry groups in terms of six-month relative performance. Decent, but not outstanding. Mutual funds owning a stake in AMC rose to 203 at the end of March vs. 186 in Q4 of 2020. Some portfolio managers are eager to accumulate shares.
AMC Stock Forecast
When choosing growth stocks for the biggest potential gains based on the CAN SLIM investment paradigm, your chances of finding a true market leader improve when you 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.
However, given that AMC stock is a turnaround play, it makes sense to place more emphasis on relative strength. AMC has that in spades.
A 99 Relative Strength Rating on a scale of 1 to 99 means that the company has outperformed 99% of all stocks in the IBD database. Strong long-term performance? Indeed. The Accumulation/Distribution Rating, meanwhile, has jumped to a best-possible A+ grade on a scale of A to E.
Plus, notice on the weekly chart and in MarketSmith, how the relative strength line has been vaulting.
The RS line, drawn in blue, compares a stock or ETF’s moves vs. the S&P 500.
When a stock breaks out of a new base, prefer to see the RS line also running to new high ground. This strongly suggests that a stock is now outperforming the general market.
In essence, AMC created a boxy cup-like base over the past two months. That’s plenty of time for a solid cup pattern to form. This pattern produces a proper buy point of 10 cents above the cup’s left-side peak. So in AMC stock’s case, the correct entry stood at 14.64. You want to see heavy volume on the breakout.
Conclusion: Is It A Buy Now? Or A Sell?
So while AMC stock is up big this week, it had to surpass 14.64 before becoming a new buy. The May 18 attempt was short-lived. However, Tuesday’s 20% gain sent shares zooming past the proper buy point.
The 5% buy zone goes up to 15.37, so the stock quickly got extended.
As always, control your risk. Not all breakouts work, especially when the stock market uptrend is under pressure. The best time to buy? When IBD notes the stock market in a confirmed uptrend, it signifies that buying demand is healthy among institutional investors.
In stock investing, you want the wind at your back, not in your face.
At some point, holders could have kept a close eye on how AMC stock handles potential upside resistance near 20. In fact, the action since that incredible week ended Jan. 29 could also be viewed as a deep cup pattern. From that vantage point, AMC delivered a second breakout, surpassing a 20.46 buy point with fury.
To get that entry in a cup without handle, simply add 10 cents to the cup’s left-side high — in this case, 20.36. On Thursday, shares rifled past this buy point and has not looked back. Still, with gains of as much as 203% last week, it makes sense to lock in at least partial profits.
And after you buy any stock with solid prospects, don’t forget the golden rule of investing. Keeping your 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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