AMC Entertainment (AMC) appears to be the latest company to benefit from the speculative retail frenzy driving stocks with a high level of short interest to improbable levels. AMC shares are up nearly 837% so far this month, giving a whole new meaning to the word “craziness.”
While these companies all share a similar theme – the short interest indicating traders are banking on shares to trend further south – they also have another characteristic in common: All have been struggling in one way or another.
For AMC, the theater chain has been dealt a brutal blow by the coronavirus. Although some of its theaters are now open, they remain so under strict social distancing and safety guidelines, while many others remain closed. Even so, the ones open to the public are, unsurprisingly, seeing low attendance rates.
Barrington analyst James Goss says that for AMC, and the industry as a whole, staying open is still viewed as important in order to “serve those consumers that remain interested in the theatrical experience.”
However, keeping the doors open with little paying customers is a costly operation. And while the company has been addressing severe liquidity issues with equity raises and debt financing, which have bolstered the balance sheet and staved off bankruptcy, a return to normalcy still appears a while away.
Goss says the presence of several available vaccines indicate a “light at the end of the tunnel,” but the analyst still believes it will take time to reach “herd immunity” and an environment in which consumers feel truly comfortable about returning to theatres.
It all points to AMC still being a risky investment.
“AMC has taken numerous actions to create adequate liquidity and improve its financial position,” Goss summed up. “However, significant uncertainty remains for the company due to the high degree of financial leverage in its business model. Even other theatrical exhibitors that are less challenged than AMC in terms of financial position are being forced to take draconian moves. Investors should be able to identify better options in the midst of the current very harsh operational environment.”
Accordingly, Goss reiterated a Market Perform (i.e. Hold) rating on AMC shares without suggesting a fixed price target. (To watch Goss’ track record, click here)
The Barrington analyst’s colleagues are on the same page. The stock currently has a Hold consensus rating, based on 4 Holds and 1 Sell. While Goss refrains from setting a price target, others take the plunge; Going by the $2.89 average price target, AMC shares are expected to decline ~85% over the next 12 months. (See AMC stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
