Stock Analysis & Ideas

Why Is AMC Entertainment the Hottest Stock This Week?

AMC Entertainment (AMC) is one of the earliest meme stocks, the other one being GameStop (GME). AMC has been grabbing eyeballs, whether it be the initial pandemic days, subsequent market recovery, or the present slaughter on Wall Street.

So let’s find out why we are talking about AMC this week.

Why AMC?

The top-line of the company jumped nearly four times in the recent first quarter. With 950 theatres and 10,500 screens across the world, AMC remains the biggest movie exhibitor in the U.S. and Europe, as well as globally. Additionally, AMC is continuing with its acquisition strategy and last month more than doubled its footprint in Connecticut, while noting it remains in talks with property owners to add more locations.

At the same time, while short interest in the stock is creeping at 20% levels, a short squeeze might be in the offing, and this time bigger players are jumping in too. Most notably, Bridgewater’s Ray Dalio is investing in AMC. The attention is increasing further, with AMC being searched more on Google in the past 30 days than Twitter or GameStop.

Robust Q1 Showing

The nearly four-times jump in revenue came from about a six-times increase in Admissions, and about five-times higher Food and Beverage revenue. The net loss per share narrowed to $0.65 from $1.42 a year ago on a higher outstanding share base. Cash of $1.2 billion at the end of March remained at healthy levels.

While concerns remain about cash flow generation and profitability, AMC notes it needs to garner higher attendance levels to be in line with pre-pandemic levels on this front. Positive signs of a demand uptick are seen in the sequential quarterly increases in attendance levels throughout 2021.

This uptick in attendance has also helped the company improve its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the U.S. and international markets to $(61.7) million in Q1 from $(294.7) million a year ago.

This change of fortune is more pronounced in the company’s annual performance, with revenue increasing from $1.2 billion in 2020 to $2.53 billion in 2021. As moviegoers increase attendance levels, analysts expect the company to reach a top line of $5.2 billion in 2023.

Additionally, in March, AMC acquired about 22% of Hycroft Mining Holding for $27.9 million.

Rising Trading Activity and Interest

Interest in AMC is soaring at both retail and institutional levels. TipRanks data indicates that 4.1% of our retail investors’ portfolios hold AMC, with an average portfolio allocation of 7.44%. Further, the best-performing investor’s portfolios on TipRanks allocate 6.98% to AMC.

Moreover, this time, bigger names are lapping up AMC. Ray Dalio’s Bridgewater Associates and Philippe Laffont’s Coatue Management have both recently lapped up AMC shares worth nearly $13.4 million. Joel Greenblatt’s Gotham Asset Management also has a holding worth about $2.7 million in AMC. Notably, Bridgewater’s AMC buy comes at the same time it sells its Tesla (TSLA) stock. In all, hedge funds have scooped up 550,200 shares of AMC in the last quarter.

Simultaneously, our data dive at TipRanks shows our users are positive on the stock, with the number of Buy transactions at about two times the number of Sells since April. AMC also remains one of the 60 most traded stocks by TipRanks’ users.

However, this enthusiasm is not shared by analysts as AMC has a consensus rating of Moderate Sell based on two Holds and three Sells. The average AMC price target of $7.67 implies a 41.36% potential downside for AMC. Diamond hand traders on Reddit may not agree.

The elevated interest levels in the stock are visible in the ten-day average trading volume of about 51 million, which is around 10% of the company’s outstanding shares. A price to sales ratio of 2.1 shows AMC is reasonably priced at current levels, and it is still up 3% over the past 12-month period compared to the 6.2% decline in the S&P 500 index.

Closing Note

AMC has a lot of things going for it. It commands loyalty from both retail investors and moviegoers. Attendance levels are still shy of pre-pandemic levels, meaning there is still room for growth. In 2022, big-name releases are expected, including Avatar 2, Black Panther, and Jurassic World sequels, as well as Top Gun: Maverick, and Thor: Love and Thunder, which should help raise footfalls.

Additionally, it remains to be seen how different forays by AMC pan out. These include the Hycroft investment; potential launch of a co-branded credit card; NFT offerings, and the acceptance of online payments in cryptocurrencies. Shares are already up about 10% in the last five days.

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