Going to the movies is exciting. But can it match the almost mind-bending 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 that same year.
The drama has continued in 2022. Shares sold off on Aug. 22, spurring a temporary halt of trading due to market circuit-breaker news. AMC sank as much as 42% to a session low of 10.46 and broke below the 50-day moving average, a sign of stock weakness. The company’s preferred equity units debuted on the NYSE under the ticker symbol APE.
Holders of AMC’s class A common shares received one APE for every share of AMC owned on Aug. 15. AMC’s management made it clear to investors that AMC stock would feel the impact of what has been dubbed the “APE-split.” However, shares have continued to weaken.
Since then, AMC stock has continued to struggle. Friday morning trading saw shares dive another 7% to 6.62, the lowest level since Feb. 23, 2021.
Prior to this development, AMC stock had already fallen sharply since late November after losing a battle to regain the north side of the pivotal 10-week moving average. Shares also gave back all of its gains from that brief yet powerful rally from a buy point at 14.64 delivered in May to early June of 2021.
Since May of this year, AMC stock had gone on a tear after bottoming out near 10 — perhaps a key psychological price level. And for nearly two weeks in August, shares bullishly traversed across the long-term 200-day moving average.
Put simply, until the recent slide, AMC’s short-term action had been the most bullish since late August to early September of 2021.
Yet 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 950 theaters and 10,600 screens scores a good probability of making more money for stock traders.
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In early February, AMC posted revenue in the fourth quarter last year of $1.17 billion, soaring 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 big time. AMC management 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 chart shows, AMC stock bumped its head against the 200-day moving average on a daily chart.
AMC made a better recovery in August. It closed several days above the 200-day line. That had not happened since November.
On Aug. 5, AMC reported another round of stronger quarterly results.
The company posted a net loss of 20 cents a share, down from a loss of 71 cents in the year-ago period. AMC’s net loss shrank to $121.6 million vs. $344 million in the year-ago quarter. Sales soared 162% to $1.17 billion. That marked the fifth quarter in a row of triple-digit top-line gains.
Plus, on a non-GAAP basis, the company generated positive operating cash flow of $52 million. A year earlier, it burned through $127 million in cash at an operating level. The firm also reported $1.18 billion in available liquidity.
“Our Q2 2022 results… prove once again what we have long said, that as Hollywood releases movies with broad consumer appeal, people will flock to see them at movie theatres in huge and eye-popping numbers,” CEO Adam Aron said in a news release. A total 59 million people saw films at AMC theaters globally, up 168% year over year.
Q3 results may arrive around Nov. 8.
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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 six 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: It bought a 22% stake 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. HYMC has cooled off after leaping 511% in one week of March alone.
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Technical Action Today
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?
Data from brokerage TradeZero for the week ended Aug. 12 shows that short sales picked up to 7,369 shares at an average cost of 24.69 each. In the week ended Aug. 19, TradeZero clients sold 3,087 shares short at an average price of 21.52. That’s tame compared to what TradeZero saw last year. In the week ended July 23, 2021, 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 the broker’s platform at an average price of 38.18 per share.
In the week ended Sept. 16, AMC did not make TradeZero’s top 10 list in heavily sold-short stocks trading under 10 per share.
Meanwhile, check out the 50-day moving average, drawn in red in all IBD charts. Before the disastrous decline in late August, AMC stock spent six weeks trading mostly above this key technical level. Meanwhile, the 50-day line began rising again. No longer the case today, though.
Why does a rising 50-day line matter? In a nutshell, it means that until the second half of August, AMC’s price trend over the past 2-1/2 months had been up. But the 50-day price trend has definitively turned lower.
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Are The Shorts Covering AMC Stock?
Let’s go back to the prior 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.
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 — now runs at 2.3 times AMC stock’s daily average volume of 42.8 million shares. That totals 98 million shares. So, short interest, in other words, makes up 19% of the stock’s entire float of 511.7 million — up in recent months, yet still down from 21% in the spring 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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Key IBD Ratings
For now, AMC’s ratings in IBD Stock Checkup are now showing more bearish tints.
They include an improved 58 Earnings Per Share Rating on a scale of 1 to 99. Yet a 14 Composite Rating on a scale of 1 (wizened) to 99 (wizardly) has plunged from a decent score of 76 last month.
Ideally, focus on stocks that show a 90 to 95 Composite score or higher.
Unfortunately, AMC’s movies industry group is sinking back to the bottom of IBD’s 197 industry groups in terms of six-month price-weighted performance. Not good. Check the daily price-weighted performance of all IBD industry groups, plus rankings based on six-month performance, at IBD Data Tables.
Mutual funds owning a stake in AMC have jumped to as high as 662 at the end of the second quarter this year vs. 190 in Q4 of 2020. But in the third quarter, fund owners have sunk to 626.
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.
Earlier in August, AMC held a very respectable 96 Relative Strength Rating definitely deserves respect. It means AMC stock has outperformed 96% of all stocks in the IBD database over the past 12 months. And the 3-month RS Rating zoomed to a highest possible 99, according to MarketSmith data. Now, those ratings have shrunk to a disappointing 3 and 1, respectively.
The Accumulation/Distribution Rating had risen to a best possible A+ grade on a scale of A to E. Now it’s slipped to a B-.
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, 2021, 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 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.
AMC Stock In 2022: Is It A Buy Now? Or A Sell?
AMC now sits almost 91% below its 72.62 all-time high set on June 2, 2021. 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.
Three months ago, this story noted it could take a while. Given the stock’s plunge, AMC will need weeks, if not months, to build the right side of that new base in bullish fashion.
Looking at the weekly chart, AMC’s chart shows the general structure of an extreme double bottom. A middle peak of 34.33, standing in between the initial low of 12.90 in mid-March and second low of 9.70 in May, generates a tentative entry at 34.43 for now.
One could also view the price action since April as a super-deep cup pattern. That would produce the same buy point. Please check out this Investor’s Corner for more clues on how to discover a good base.
So, for the cautious investor, AMC is not at a buy now.
For a few days, the weekly chart showed AMC trying to cross a nearly 12-month trendline that connects the September 2021 peak of 52.79 with lower highs in November 2021 (45.95) and the end of April this year (34.33). For the super-aggressive trader, this trendline breakout near 25 offered an uber-speculative entry. Yet the creation of AMC’s “APE-split” new preferred equity units underscores the risk of trendline buy points.
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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