Going to the movies is exciting. But can it match the action by AMC Entertainment (AMC)? Starting the year at 2 a share, AMC stock skyrocketed more than 36-fold to an all-time high of 72.62 on June 2.
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Even though an epic short squeeze rally hit overdrive in January this year, AMC stock still attracts short sellers.
Data from brokerage TradeZero America for the week ended July 23 shows AMC Entertainment placed 3rd among stocks trading at least $10 a share and getting sold short the most. A total 14,666 short-sale trades crossed TradeZero’s platform at an average price of 38.18 per share. AMC ranked No. 2 for the week ended Aug. 20; 8,510 short-sale trades crossed the platform with an average price of 35.79.
For weeks, AMC has faced stubborn upside resistance at the 21-day exponential moving average. No longer this week. Plus, on Wednesday the large cap gave so little of Tuesday’s strong gain of more than 20%. Through morning trading Thursday, shares have bolted 24% higher for the week.
With only three trading sessions left in August, AMC shares are trying to stem a two-month slide after the company smashed second-quarter estimates; its net loss of 71 cents a share beat an estimated net loss of 93 cents. Sales rebounded to $444.7 million vs. $18.9 million a year ago, blasting a forecast for $375 million.
Q2 Reaction
In an Aug. 9 news release, AMC Chairman and CEO Adam Aron noted the company raised another $1.25 billion in new equity capital during the quarter; welcomed more than 22 million guests back to its theaters across the globe; and saw successive new pandemic-era box office records on the back of new blockbuster films released over the three-month period.
AMC stock staged a negative reversal the next day after earnings following an early rally up to its 21-day EMA. Please see this IBD news story for more details on second-quarter results.
Meanwhile, check out the downward-sloping 50-day moving average, drawn in red in all IBD charts. It no longer lags the stock price. AMC stock had started to live beneath this vital medium-term level of technical support and resistance. But now AMC shares are showing an encouraging rebound back above the 50-day line (or the 10-week moving average on a weekly chart); such a move after a normal breakout from a well-formed base can present a follow-on entry point.
AMC Stock: Still A Leader In The Stock Market Today
So, given extraordinary gains through late May, is it time to take profits off the table? After all, the May rally displayed elements of a climax run. And now, gains from a recent buy point at 14.64 have now shrunk dramatically.
Or is it a buy now?
This story examines fundamental, technical and fund ownership factors to determine if the Leawood, Kan., company with 1,004 theaters and 11,041 screens scores a good probability of making more money for stock traders.
After Memorial Day, AMC jammed nearly 23% higher 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.”
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Some of that money could also go toward paying down debt.
On June 3, shares at one point fell more than 30% on news the company plans to sell up to 11.55 million shares — or roughly 2.6% of the total common shares outstanding. AMC raised $587 million. On July 6, the company decided to shelve a plan to sell more shares to the public.
Are The Shorts Covering AMC Stock?
Meantime, consider this stat: Prior to the giant gain on June 2, 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.
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.
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 data analyzed by MarketSmith, short interest — shares sold short by individual and professional investors — stands at 0.9 times AMC stock’s daily average volume of 105 million shares, or roughly 95 million shares. Short interest, in other words, has climbed back to nearly 19% of the stock’s entire float. That’s down from 21% in the spring.
The NYSE publishes data on short sale positions only 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.
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 stock (pumping its market value this year to as high as $36 billion on 513 million shares outstanding and a float of 508 million) has lately seen its overall price range narrow. That’s good as the new base formed.
Inside Investor’s Corner: What Is Short Interest, And How To Take Advantage Of It
Will AMC Stock Keep Rallying In The Long Term?
AMC fans 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.
Wall Street now expects net losses of $2.85 a share for 2021, a far cry from the unadjusted net loss of $16.15 it suffered last year. And the Street sees net losses shrinking further in 2022, to 83 cents a share. Recently, that estimate stood at a net loss of 96 cents.
With big sales expected to arrive, you can expect cash flows to greatly improve.
Some observers have expressed concern over the company’s debt load ($5.5 billion in borrowings due one year from now or longer, as of June 30) vs. total assets ($11.3 billion) on the balance sheet. While the company generated $1.21 billion in net cash from financing activities in the first six months of 2021, AMC still posted a negative free cash flow of -$252 million. Operating cash flow was a net outflow of $234 million.
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 many of IBD’s proprietary ratings. They include an improved 44 Earnings Per Share Rating on a scale of 1 to 99; an improved yet still weak D for Sales + Profit Margins + Return on Equity (SMR) Rating; and an improving 66 Composite Rating on a scale of 1 (wizened) to 99 (wizardly).
Meanwhile, AMC’s movies industry group has dropped deep back into the bottom half of IBD’s 197 industry groups in terms of six-month price-weighted performance. Mutual funds owning a stake in AMC have recently risen to as high as 232 at the end of the June-ended quarter vs. 186 in Q4 of 2020. Some portfolio managers are clearly eager to accumulate shares.
You can check the daily price-weighted performance of all IBD industry groups, as well as the rankings based on six-month performance, at IBD Data Tables.
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 over the past 12 months. Strong long-term performance? Indeed. The Accumulation/Distribution Rating, meanwhile, shows an excellent A grade on a scale of A to E.
On the weekly chart and in MarketSmith, watch for the relative strength line to rise again after falling steeply. 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 means that a stock is now outperforming the general market.
Earlier this year, AMC created a boxy cup-like base over a period of 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 of 14.54 on March 18. 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?
In effect, AMC stock staged a strong breakout twice over a short period in May.
First, AMC had to surpass 14.64 before becoming a new buy. A 20% gain on May 25 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 goes under pressure or into a correction. 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.
Back in May, this story suggested keeping 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 on May 27, surpassing a new 20.46 buy point with fury.
To get this ideal entry in a cup without handle, simply add 10 cents to the cup’s left-side high — in this case, 20.36. On May 27, shares rifled past this 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.
AMC Action Today
Given that AMC had fallen as much as 60% below its 72.62 all-time high, AMC does not trade at an IBD-style entry point. For those who want to go long, you can watch to see if a new bullish chart pattern will form. For a while, the action began to form a rare high, tight flag. No longer.
This week’s attempt to rebound back above the 10-week moving average, just under 41, might spark a new follow-on buy opportunity for the intrepid investor.
However, all in all, AMC is not yet a buy. That could change if shares continue to rally further above the 10-week line with strength and serious volume. More than three months since the peak, it is looking more likely that AMC is building a new base.
Finally, after you buy any stock with solid prospects, always heed 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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