Going to the movies is exciting. But can it match the action by AMC Entertainment (AMC)? Starting the year of 2021 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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However, AMC has been falling sharply since late November after losing a battle to regain the north side of the technically pivotal 10-week moving average.
And shares in the operator of 950 movie theaters and 10,500 screens worldwide have now given back all of that powerful rally gains from a buy point at 14.64 delivered in May to early June of 2021 and then some.
At this point, is it time to take any remaining profits off the table? After all, the May 2021 rally displayed elements of a climax run.
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.
In early February, AMC posted revenue in the fourth quarter last year of $1.17 billion, up 620% vs. a year earlier, and an adjusted net loss of 11 cents a share. The top line beat a Yahoo Finance consensus estimate of $1.09 billion and a net loss of 26 cents. The blockbuster “Spider-Man: No Way Home” boosted ticket revenues and noted bookings for the upcoming flick “The Batman” in its initial weekend as “very strong.”
For several weeks in March, buyers dominated the stock again. AMC reached a four-month high of 34.33.
But as a MarketSmith weekly chart shows, AMC stock bumped its head hard against the 40-week moving average, which moves in similar form to the 200-day moving average on a daily chart. The stock has failed to recover ever since.
This week, AMC has collapsed more than 24% so far after reporting another quarter of net losses.
AMC reported a net loss of 52 cents a share in the first quarter vs. a net loss of $1.42 a year earlier; sales surged again for the fourth quarter in a row, up 430% to $785.7 million. According to a news release, the company noted its box-office outlook for the rest of 2022 as “very exciting.” New releases will include Top Gun: Maverick; Jurassic World Dominion; Lightyear; Thor: Love and Thunder; Minions: The Rise of Gru; and Black Panther: Wakanda Forever.
Going Beyond The Box Office?
Keep in mind that blockbuster movies don’t necessarily lead to an equally sizable windfall for the theater operators.
Robert Marich, author of “Marketing to Moviegoers,” told IBD that “profit excess from ticket sales of blockbuster movies goes disproportionately to Hollywood distributors, because theater percentage of ticket revenue diminishes on a percentage basis.”
AMC is hungry to expand into new revenue streams.
CEO Adam Aron noted three months ago that the company expects to launch a food delivery service with Uber as a partner as early as the second quarter as well as launch an AMC-branded credit card later this year. AMC also noted plans to accept Shiba Inu Dogecoin as payment.
In April, AMC made headlines in another extraordinary way: buying 22% of Hycroft Mining (HYMC), which operates a precious metals mine in Nevada. The deal gives AMC 23.4 million shares, each share with a warrant to own more shares, in the company. Apparently, the 71,000-acre mine has 15 million ounces of gold deposits and 600 million ounces of mining-worthy silver.
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Even though an epic short squeeze rally hit overdrive in January 2021, AMC stock still attracted short sellers during the summer of that year. Now, after a bruising decline since the spring of 2021, have the shorts let up?
Dan Pipitone, CEO of TradeZero, noted in mid-March that he’s seen long and short trading activity ramp up in both AMC and HYMC.
“Instead of trying to play sectors and catch the move correctly, the TradeZero community seems to have returned to what has worked in the past. They seem to be leaving the interest rate plays to the hedge funds and sticking with front page news and the stock of the day in the community chat,” Pipitone told IBD via email.
Last year, AMC attracted plenty of short sellers.
Data from brokerage TradeZero for the week ended July 23, 2021, 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. But for the week ended Nov. 26, TradeZero tracked just 631 short trades at 38.99 per share on average.
In the week ended Jan. 14 this year, short selling perked up a bit; a total 4,679 short trades crossed TradeZero’s platform at an average price of 21.74. In the week ended May 6, TradeZero counted 1,856 short trades with an average price of 15.05 per share.
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Technical Action Today
After a disappointing reaction to fourth-quarter results, AMC remains deeply in base-building mode. A solid rally has ensued in recent weeks. Yet it’s still unclear whether the stock has truly bottomed out.
Meanwhile, check out the 50-day moving average, drawn in red in all IBD charts. In November, AMC shares showed an encouraging rebound back above this medium-term technical support-and-resistance level. Yet such support vanished later that month. AMC stock also has spent the past three months inhabiting the south side of the 10-week moving average. You’d like to see a good stock rally above the 10-week line and lead this technical construct higher.
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Are The Shorts Covering AMC Stock?
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.
In January 2021, 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 MarketSmith, short interest — shares sold short by individual and professional investors — stands at 2 times AMC stock’s daily average volume of 49 million shares. That totals 98 million shares. So, short interest, in other words, makes up 19% of the stock’s entire float. The figure stood at 21% in the spring of 2021.
Strong profitability in the future could lead to increasing accumulation by large funds and other institutional investors. A powerful rebound could force short sellers to cover their positions, helping to propel shares even higher.
The NYSE publishes data on short sale positions 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.
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AMC Stock: The Fundamental Picture
During 2020, hard hit by the Covid-19 pandemic, 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 AMC trimmed that net loss sharply in 2021, down to $2.50 a share. Wall Street now expects a net loss of $1.05 a share for 2022 and a net loss of 45 cents in 2023.
With big sales expected to continue, expect operating cash flows to improve.
The last time AMC paid a dividend came on March 23, 2020, at 3 cents per share.
On Feb. 14, the firm said it closed a private offering of $950 million in 7.5% senior secured bonds that mature in 2029.
Key IBD Ratings
For now, AMC’s ratings in IBD Stock Checkup remain weak.
They include an improved 55 Earnings Per Share Rating on a scale of 1 to 99. A 25 Composite Rating on a scale of 1 (wizened) to 99 (wizardly) still signals room for vast improvement.
Ideally, focus on stocks that show a 90 to 95 Composite score or higher.
Meanwhile, AMC’s movies industry group is still struggling at the bottom of IBD’s 197 industry groups in terms of six-month price-weighted performance. Good.
Mutual funds owning a stake in AMC have jumped to a record 653 at the end of the December quarter vs. 190 in Q4 of 2020. Impressive growth here.
In other words, professional portfolio managers appear to be accumulating shares.
Check the daily price-weighted performance of all IBD industry groups, plus rankings based on six-month performance, at IBD Data Tables.
Relative Strength Sinking Again
When choosing growth stocks for the biggest potential gains based on the CAN SLIM investment paradigm, 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 17 Relative Strength Rating has dropped sharply from 37 in early April. The 17 score simply means AMC stock has outperformed just 17% of all stocks in the IBD database over the past 12 months. The 3-month RS Rating, however, hit as high as 84, also on a scale of 1 to 99, last month, according to MarketSmith analysis. But now it’s nose-dived to an 8 score
The Accumulation/Distribution Rating now shows a middling C grade on a scale of A to E.
From March to May 2021, AMC created a boxy cup — 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’s case, the correct entry stood at 14.64.
AMC Action In The First Half Of 2021
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; 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, seek the wind at your back, not in your face.
Back in May 2021, this story suggested watching how AMC stock handles potential upside resistance near 20. In fact, the action since that incredible week ended Jan. 29 molded 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 — 20.36. On May 27, shares rifled past the 20.46 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.
Conclusion: Is It A Buy Now? Or A Sell?
AMC now sits 85% below its 72.62 all-time high. So at the current price level, it does not yet trade at an IBD-style entry point. For those who want to go long, watch to see if a new bullish chart pattern will form.
It could take a while.
Nearly a year ago, a big move in August back above the 10-week moving average (near 40) sparked a new follow-on buy opportunity for the intrepid investor. Plus, if one draws a trend line starting with the 64.96 high during the week ended June 18, a strong rally past 48 sparked an early entry too. (Please check out this Investor’s Corner on how to draw a good trend line within a developing base.)
That trade, however, quickly turned sharply in the red.
So at this point, AMC is not a buy right now.
For aggressive traders, a short-term trend line drawn from the Sept. 13 near-term high of 52.79, connecting the Oct. 19 intraday peak of 44.44, had produced an early buy point near 41. In early November, AMC offered an aggressive entry again. But the whipsawing action lately made this a high-risk buy.
AMC may need months to build the right side of that new base in bullish fashion.
During the first three months of 2022, AMC’s chart showed the structure of a double bottom. Recent weekly gains triggered an aggressive new entry point at 21.06. Get that price by adding a dime to the high of 20.96 in the week ended Feb. 11. However, this pattern came off a massive decline in the share price. You’d prefer to see a stock run up at least 30%, then fall in price and create a good base.
The recent volatility exemplified how short-term trading in AMC is likely the best tactic for now.
Finally, after you buy any stock with solid prospects, heed the golden rule of investing. Keeping 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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