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 36-fold to an all-time high of 72.62 on June 2.
Shares are still cooling off, despite news Monday that AMC posted another post-reopening weekend attendance record. The movie house chain counted 3.2 million moviegoers worldwide from Thursday to Sunday.
Last week, AMC stock briefly tested 40, a key round number, just as it did on June 10. By the end of Thursday’s session, AMC rebounded nicely off its intraday low. But on Tuesday, shares dropped another 7% in accelerating turnover. They also closed below 40 for the first time since June 1.
Indeed, such a correction isn’t unwarranted; after all, the meme stock finished the second quarter up an astounding 455%.
On June 29, AMC closed beneath the short-term 10-day simple moving average for only the third time since mid-May. After a torrid run, a few quiet sessions and inside days or inside weeks would actually serve the stock well.
Despite the recent sell-off, what favors the bulls?
Consider this simple technical analysis: For now, the 50-day moving average — drawn in red in all IBD charts — is still lagging the actual stock price. But the 50-day line has been catching up. And on Wednesday, some investors continued to take profits. This has sparked AMC’s first test of buying support at this moving average in more than two months.
The company did not announce any news Wednesday.
Meanwhile, last week, the stock has undercut its 21-day exponential moving average; this indicates the stock may be poised for a bigger pullback.
You can draw the 21-day exponential line on MarketSmith. The 21-day line is now slanting lower.
AMC Stock: Still A Leader In The Stock Market Today
So, given extraordinary gains since late May, is it perhaps time to take more profits off the table? After all, the May rally displayed a few elements of a climax run.
Or is it a buy now?
This story examines the 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 money for stock traders.
Following the long Memorial Day holiday weekend, 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.”
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 later announced completion of the offering, raising $587 million.
Are The Shorts Covering AMC Stock?
Some observers have expressed concern over the company’s huge debt load ($5.4 billion in borrowings due one year from now or longer, as of March 31) vs. total assets ($10.5 billion) on the balance sheet.
Earlier this month, the company decided to shelve a plan to sell more shares to the public.
In the 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%. So 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. If you were watching or trading GameStop (GME), you likely were also keeping close tabs on AMC Entertainment.
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 short interest — or shares sold short by individual and professional investors — is currently 0.4 times AMC stock’s daily average volume of 189.9 million shares, or roughly 76 million shares. That’s still equivalent to 15% of the stock’s entire float — still quite heavy, but down sharply from 21% recently.
Please keep in mind that 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.
Still, short sellers had clearly 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 stock (pumping its market value this year to as high as $36 billion on 502 million shares outstanding and a float of 497 million) has lately seen its overall price range narrow. That’s good as the new base formed.
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 $3.25 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 93 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.
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. 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 a slumping 56 Composite Rating in recent weeks on a scale of 1 (wizened) to 99 (wizardly).
Meanwhile, AMC’s movies industry group remains in the top half of IBD’s 197 industry groups in terms of six-month price-weighted performance. Mutual funds owning a stake in AMC has risen to as high as 219 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.
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.
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 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?
First, AMC had to surpass 14.64 before becoming a new buy. The May 18 attempt was short-lived. However, 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 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.
Earlier, 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, surpassing a new 20.46 buy point with fury.
To get this additional 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 and has not looked back. Still, with gains of as much as 501% in just two weeks, it makes sense to lock in at least partial profits.
AMC Trading Tightens
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.
Yet at this point, AMC is sharply extended from an IBD-style entry point. So it is not a buy now. And it’s still a great time to take some short-term trading profits.
Now it looks like AMC could face its first test of the 10-week moving average since May. After a breakout from a solid base, the first and second rebounds off the 10-week line can offer a follow-on buy opportunity.
But for now, AMC is not a buy.
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