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Is AMC Stock A Buy Or Sell Now? Here's What Fundamentals, Chart Action, Fund Ownership Metrics Say

DAVID SAITO-CHUNG03:01 PM ET 09/22/2023

https://www.investors.com/research/amc-entertainment-stock-buy-now/?src=A00220

Going to the movies is fun and exciting again. But can it match the truly mind-bending action of AMC Entertainment (AMC)?

Starting the year 2021 at 2 a share, AMC stock skyrocketed 36-fold to an all-time high of 72.62 on June 2 that same year. That price is unadjusted for Thursday's 1-for-10 reverse stock split. Then came 2022, a brutal year for meme stocks.

AMC stock started that year at 27.20 (before the reverse split) and ended at 4.07 , a miserable loss of 85%.

In recent weeks, AMC shareholders had reason to look forward to another rebound in 2023, at least in the short term. However, some key changes in the capitalization of the stock have led to a massive decline over the past month and a half.

AMC Stock Today: Is It A Buy Now?

For growth investors, it's important to understand how well a stock can perform vs. a key benchmark. As for AMC stock, IBD's relative strength line, which graphs a stock or ETF's day-to-day performance vs. the S&P 500, has plunged since Aug. 14. This means AMC is still underperforming the S&P 500.

AMC recently saw its market value plummet to just under $1.3 billion, squarely in small-cap land, according to MarketSmith.

So, is AMC stock a buy now? Or is it a sell?

This story examines fundamental, technical and fund ownership factors to determine if the Leawood, Kan., company with 950 theaters and 10,500 screens scores a good probability of making money for stock traders.

During premarket trading on Aug. 31, AMC stock rose more than 6% after the company announced it will begin showing "Taylor Swift: Eras Tour" four times each day from Thursday through Sunday at all of its locations. The movie will launch on Oct. 13. Ticket prices will range from $19.89 for adults plus tax, and $13.13 for children and seniors.

"In anticipation of the first day of advance ticket demands, AMC has bolstered its ticket server capacity to handle traffic at more than 5 times the current record for the most ever tickets sold in an hour," AMC said in a news release. On Sept. 1, the company reported that pop music icon Taylor Swift's concert film shattered records for single-day ticket sales revenue at $26 million.

An hour and a half into the regular session on Aug. 31, AMC shares zoomed as much as 9% higher, hitting an early session high of 13.90, before pulling back to a minor gain. Volume intensified, running at a pace of more than 800% above the stock's average turnover over the past 50 sessions.

Share Offering News Crushes AMC Stock

However, the stock still cratered more than 71% in August. It marks the worst drop in a single month for AMC stock, deeper than even the 49.5% drubbing it took during the month ended March 2020. Plus, AMC shares continue to plunge this month.

Over a two-day period on Sept. 6-7, the stock fell a combined 43% after the company announced a plan via a filing to the Securities & Exchange Commission to sell up to 40 million in additional common shares.

Volume skyrocketed to 84.9 million shares during the Sept. 6 sell-off — a clear sign that institutions unloaded shares. Turnover jumped to the highest amount so far this year and almost eight times the stock's average turnover over the past 50 sessions.

Ahead of the recent offering, the company showed 158.4 million shares outstanding. A new share offering certainly dilutes the stock. On Sept. 14, shares broke a three-day winning streak on news that the company completed the offering sale at an average price of $8.14 per share. That raised $326 million.

Yet after trading near 7.77, AMC stock still lies nearly 78% below its Jan. 1 start at 35.91, including the reverse split.

At the end of Q2, AMC held $435 million in cash and equivalents, $23 million in restricted cash, and assets of $8.67 billion.

AMC Stock Today: APEs Conversion Whacks Shares

Since then, AMC's drama in the stock market today has continued.

On Aug. 14, the stock cratered more than 35% to 29.91 on news the Delaware Chancery Court approved the company's revised plan to convert its preferred equity units, nicknamed "APEs." AMC CEO Adam Aron described it as a "terrific relief," MarketWatch reported. But shares likely plunged on the dilution effect that the conversion brings.

The company on Aug. 18 issued a new 8-K filing to the SEC with details on the conversion of the APEs. The conversion resulted in the trading of a single class of AMC shares and the completed 1-for-10 reverse split of common shares. Plus, the APEs ceased trading on Friday and converted into common shares.

Barron's reported that it's possible for warrants could also get converted into common shares. That would boost the total share count overall.

On Aug. 24, trading in AMC stock reflected the 1-for-10 reverse stock split. That is, a holder of 10 shares of AMC now owns just one share, but the share price got multiplied by 10. The action, for now, has not stopped recent bleeding in shares.

According to newly updated data on a MarketSmith chart, the stock now holds a revised float of 156.8 million freely traded shares and 158.4 million shares outstanding. However, these numbers may very well rise. In an Aug. 24 SEC filing, AMC Entertainment said it would register 6.9 million shares to settle stockholder litigation as noted later in this story.

Volatility Rising

The latest slide marked the stock's lowest closing prices since late January of 2021, when the bubble-like buying rush of meme stocks began. From its mid-July peak of 54.97, AMC stock has fallen more than 85%.

The current year initially saw a much better start for AMC. But after more than doubling from its year-end close during the first two months of 2023, shares slid hard after the company said March 14 that 87% of voting shareholders approved a plan to conduct the reverse split and the conversion of APEs into common stock.

On July 24, AMC stock jumped more than 35% and reached as high as 54.97, adjusted for the reverse split. Volume soared more than 11 times its average pace over the past 50 sessions. The stock also briefly ramped above its 200-day moving average, drawn in black on a MarketSmith chart, for the first time since February.

But AMC stock pulled back hard again. Shares also crashed below the 200-day line, a key long-term technical level.

Q2 Earnings Out

On Aug. 8, the company posted a net loss of a dime a share, down from a net loss of 90 cents in the year-ago quarter, based on revised figures following the 1-for-10 reverse split, according to MarketSmith. Sales rose 16% to $1.35 billion.

Meanwhile, adjusted EBITDA grew 71% to $182.5 million. Operating cash flow expanded by $63.2 million to a total $13.4 million; on a non-GAAP basis, it generated $99.8 million in operating cash. This helped boost the company's liquidity to $643.4 million, including $208.1 million of undrawn capacity under a revolving credit facility.

CEO Adam Aron, in a news release, noted that AMC theaters around the globe welcomed more than 66 million guests in the quarter, the highest level since Q4 of 2019.

"One area that has far exceeded pre-pandemic norms has been per-patron revenue," Aron said. The firm generated revenue of $7.36 per patron from food and beverages, "within a penny of our all-time high watermark. Considering the substantial operating margin of our food and beverage business, this is contributing meaningfully to our improving profitability," he added.

On Sept. 20, MarketWatch reported CEO Aron as saying the company is considering proposals to launch a branded craft beer named "Great Ape Ale" as well as branded premium gourmet chocolate and candy. Earlier this year, AMC began selling branded popcorn at 2,600 Walmart stores.

A Strong Start In The Third Quarter

The company highlighted that Q3 is "off to an explosive start" with big hits in the movies "Barbie," "Oppenheimer," "Mission Impossible: Dead Reckoning Part I," "Sound of Freedom," and others. July turned in the highest monthly revenue in the company's 103-year history.

Barron's reported earlier in August that B. Riley analyst Eric Wold estimates "box office revenues per screen for AMC recovered to 93% of 2Q19 levels vs. an industry recovery to 82% of 2Q19 levels." Wold rated the stock at neutral with a 4.50 price target.

Keep in mind that blockbuster movies or TV shows 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."

Wall Street currently sees AMC posting a net loss of $2.51 a share this year and a net loss of $1.72 in 2024, down from an earlier estimate of -$1.82. In 2022, AMC posted a full-year adjusted net loss of $6.10 a share vs. a net loss of $11 in 2021.


AMC Sales Continue To Recover

In early May, the stock reported a net loss of $1.10 in the first quarter of 2023. A year ago, AMC suffered a net loss of $1.90 a share, according to revised numbers on MarketSmith. Revenue jumped 21% to $954.4 million. The company saw food and beverage spending per patron of $6.90 globally and $7.99 in the U.S.

CEO Adam Aron noted the first-quarter results as the strongest for a first quarter of the year in at least four years. "The recovery in the European box office easily surpassed 2022 by some 29%, totaling more than $1.7 billion," Aron noted.

He added "The Super Mario Brothers Movie" has helped the second quarter get off to a marvelous start with ticket sales surpassing $1 billion worldwide.

On May 4, AMC stock posted its highest close since March 7. At one point, the small cap's year-to-date gain reached 44%. But AMC stock let those gains slip away again. Notice too how it slumped below the 50-day moving average again.

The Preferred Units Puzzle

Earlier, in a filing issued on July 31 to the Securities and Exchange Commission, Aron made it abundantly clear that the company and shareholders would benefit from the conversion plan of APE preferred equity units.

"To protect AMC's shareholder value over the long term, we must be able to raise equity capital," Aron wrote in an open letter. That is especially the case now with the added uncertainty caused by the writers and actors strikes, which could delay the release of movies currently scheduled for 2024 and 2025."

"If we are unable to raise equity capital, the risk materially increases of AMC conceivably running out of cash in 2024 or 2025, or of AMC being unable to satisfactorily refinance and stretch out the maturity of some of our debt (which is required of us beginning as early as 2024)," Aron added.

In March, the company had received the green light from a shareholder vote to convert its APE units into common stock.

"If implemented, AMC should have an ability to raise a significant amount of equity capital in the months and years ahead. Winning these shareholder votes by such a lopsided margin is a powerful vote of confidence to allow AMC to raise equity capital, reduce debt, strengthen our balance sheet and continue our transformation," Aron said in a March 14 news release.


Will The Shorts Cover AMC Stock This Year?

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?

Let's first revisit the hyper-fast run during the meme stock boom of 2021. Prior to the giant gain on June 2, 2021, 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.

According to MarketSmith, short interest — shares sold short by individual and professional investors — has recently hit as high as 23.6 million shares, or 15% of the stock's float. Still a heavy amount.

Strong future profits 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.

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, at some point may have to do a sudden about-face. They cover their short position by buying back shares.

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.


Key IBD Ratings

AMC's ratings in IBD Stock Checkup are showing bearish tints.

They include a much improved 60 Earnings Per Share Rating on a scale of 1 to 99, up sharply from 23 in recent months. Prior to the Q4 report, AMC's EPS score stood at 42.

A 20 Composite Rating on a scale of 1 (wizened) to 99 (wizardly) in recent days has actually rebounded some, yet it remains desperately low. It stands well below a score of 76 in February. When choosing growth stocks for the biggest potential gains based on the key elements of IBD's growth stock investing 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.

During the first quarter of this year, AMC's movies industry group had ranked highly among IBD's 197 industry groups in terms of six-month price-weighted performance. The group has cooled off to 88th in recent days after rising to as high as 20th during the summer.

Check the daily price-weighted performance of all IBD industry groups, plus rankings based on six-month performance, at IBD Data Tables.

AMC Stock: Relative Strength Sinking Again

In August last year, AMC held a very respectable 96 Relative Strength Rating. This score means AMC stock had outperformed 96% of all stocks in the IBD database over the past 12 months. And the 3-month RS Rating at the time zoomed to a highest possible 99, according to MarketSmith data. These two ratings now stand at 1, the worst possible. Both scores have fluctuated tremendously in recent weeks.

The RS Rating runs from 1 to 99; for investors selecting top growth stocks, the higher the RS Rating, the better the stock in general.

Watch to see how the RS Rating changes in the coming week.

The Accumulation/Distribution Rating shows a weak D+ grade on a scale of A to E. This rating analyzes 13 weeks' worth of price-and-volume action. A grade of C+ or higher points to institutions, on net, accumulating shares.

Meanwhile, mutual funds owning a piece of AMC stock have dropped from 686 at the end of 2021 to as low as 293 as of the end of the second quarter this year, according to MarketSmith.


Stock Action In 2021 Vs. 2022

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. (MarketSmith has a change-date function that makes it easy to look at historical charts.)

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.

For a few days in August 2022, AMC tried to cross a nearly 12-month trendline that connects the September 2021 peak (32.43, adjusted for a stock split) with lower highs in November 2021 (28.23) and early April 2022 (21.09). For the very aggressive trader, this trendline breakout near 15 offered an uber-speculative entry. But the rally attempt fizzled fast.

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 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.

AMC Stock In 2023: Is It A Buy Now? Or A Sell?

Amid the latest plunge, AMC sits 97% below its split-adjusted high of 393.65 set on June 2, 2021. So at the current price level, it does not yet trade at an IBD-style entry point.

However, next week the situation could change dramatically. Watch to see if a new bullish chart pattern will form. And AMC will definitely need weeks, if not months, to build the right side of that new base in bullish fashion.

An excellent set-up means the big boys and girls on Wall Street are more inclined to buy and hold shares, not dump them. Once a strong chart pattern has been established, an IBD-targeting breakout offers traders the best opportunity to reap gains at the start of a potential big run.

So at this point, AMC stock is not a buy. At some point, a cup base will form, but it's too early to tell.

Unfortunately, shares have dived below this year's earlier low of 33.27.

Shares need to do these four things now:

1. Rise above the 10-week moving average and stay above it for a significant time period. This hasn't happened yet in 2023 so far.

2. Overcome a large overhead supply of disgruntled holders ready to sell if the stock climbs back to around 35 to 45 a share. Also, the July near-term high of 54.97 may emerge as the left-side lip of a deep bottoming base.

3. Present price-and-volume action that signals heavy accumulation by fund managers, not distribution. On the bright side, AMC has not posted a sharp loss in heavy weekly volume since early April.

4. Rebound above its still-falling 40-week moving average, which has now sunk below 40.

One More Key

Finally, after you buy any stock with solid prospects, always 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