Going to the movies is fun again. The ticket sales of this past summer's movies such as "Inside Out 2," "Despicable Me 4" and "Bad Boys: Ride or Die" certainly attest. But can it match the truly mind-bending action of AMC Entertainment (AMC)?
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On May 13, AMC stock jumped 78% in a single session. Shares roared another 32% the next day and hit as high as 11.88. AMC hadn't seen that price since August of last year.
The impetus? Fellow 2021 meme stock Gamestop (GME) soared on news that Keith Gill, who gained fame as 'Roaring Kitty' on the WallStreetBets message board of Reddit back in 2021, announced that he made a new big bet on the stock. Gamestop shares quickly moved in hyper-kinetic form, to say the least, as this new IBD story highlights.
On Wednesday, AMC shares eased 1.2% in thin trading after Gamestop tanked 15% in triple normal volume following its quarterly results posted late Tuesday.
Meanwhile, since that eye-catching move by AMC in May, the stock has actually shown signs that it has potentially bottomed.So, is AMC stock a buy in 2024? Or is it still a sell?
This story examines fundamental, technical and fund ownership factors to determine if the Leawood, Kan., company with 900 theaters and 10,000 screens scores a good probability of making money for stock traders.
AMC Stock Today: Is It A Buy?
AMC stock has continued to rise from its year-to-date low of 2.38. Back in May, shares rose as much as 399% from that low. At one point on May 14, shares pole-vaulted above the long-term 200-day moving average, another sign of a possible character change.
Shares later sank sharply on news that AMC plans to enter into a new equity agreement to lower its outstanding debt. AMC nearly fell back to 4, but has held above this price level in recent weeks.
AMC stock fell 9% in August, but the stock market experienced extra-high volatility that month. At one point, SPDR S&P 500 ETF Trust (SPY) dropped as much as 7.4% during the month of August but ended 2.3% higher. Still, AMC has bullishly narrowed its trading range in recent months.
Also, as this column mentioned in July, AMC shares had been knocking on the door of a key long-term technical level, the 200-day moving average — currently at 4.76. On Tuesday, the stock slipped 2.5% to 4.88, yet held above the 200-day average.Great stocks rise above both the 200-day and 50-day lines in preparation for a strong breakout.
True Market Leaders Vs. Meme Stocks
Please keep in mind that AMC Entertainment is not a true growth stock.
After the bear market ended in late 2022, top-quality growth stocks have continued to sharply outperform the major indexes. Such companies may trade at a much higher per-share price than the meme plays. But IBD research has found that institutional sponsorship is one of three major factors that determine a stock's long-term success.
Therefore, focus on stocks that have excellent earnings and sales, show true relative performance vs. the S&P 500 and their peers, and trade relatively high in price (leading to more liquidity). Doing so boosts the chances of finding a stock that truly makes your investing year.
The computer-generated lists of top growth stocks today, all accessible at Investors.com, offer a great place to start. Companies that show up on more than one screen, such as IBD 50, Big Cap 20, and Sector Leaders, often display the same traits as the biggest stock market winners in decades past.
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Shaky Start To 2024
AMC stock struggled in January this year. On Jan. 31, after the Federal Reserve's first meeting of 2024 on interest rates concluded, the stock finished 1.5% lower to a record low of 4.05 and dropped nearly 34% for the month. In contrast, the S&P 500 added 1.6% in January.
It was encouraging to see AMC shares bounce off its lows in February and end the month with a 6.7% gain. Yet for months, the stock had been living below an important technical level on its weekly chart: the 10-week moving average.
The sell-off then worsened in March, despite some optimistic comments from the company's CEO.
"My good news on this Easter Sunday is that in March, the domestic industry box office finally turned upwards," AMC CEO Adam Aron said in a tweet on X.
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April Showers For AMC Entertainment Stock Turn Into May Flowers
AMC stock finished the month of March down 13.9%, then nose-dived another 21% in April. But in May, shares briefly vaulted 305% and hit a multimonth high of 11.88.
Plus, the weekly chart shows a bullish new development: After AMC surged above the 10-week moving average, which sloped sharply higher in July, it's traded quite close to this technical level. That's positive.
The 10-week moving average plots a stock's average closing price over the 10 most recent weeks of trading. Ten weeks covers 2-1/2 months of trading.
And since May 8, when the company reported Q1 results (net loss of 78 cents a share, much less than the $1.31 it lost a year earlier), shares have gained considerable ground. Sales fell slightly in the quarter vs. a year ago to $951.4 million.
Earlier in the second quarter of this year, AMC traded briefly below 3 after it reported an adjusted net loss of 78 cents a share amid revenue of $951.4 million, down less than 1% vs. a year earlier. CEO Adam Aron said in prepared remarks that "better times are ahead." Capital IQ forecast a net loss of 77 cents.
"We had expected for some time the Hollywood actor and writer strikes of 2023 would impact the first-quarter box office, but were heartened by the strength of moviegoing in March, which reminded us that better times are ahead," Aron added.
Following the rocket-like move in GME, AMC's stock market value has rebounded back above $1.7 billion, according to MarketSurge. More than a year ago on Feb. 28, 2023, the stock was valued at $14.9 billion.
A recent weekly issue of Barron's details concerns on AMC's large debt load.
While the article noted the company has $8.6 billion in long-term debt as of December 2023, analysts at CreditSights argue that figure "overstates the company's debt load because it includes operating leases." Jory Eisenberg and Hunter Martin at CreditSights "advise focusing on the current net debt — totaling $3.46 billion, excluding those leases — which should be regarded more as operating expenses."
A Terrible 2023 For AMC Stock
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. (Those prices are unadjusted for a 1-for-10 reverse stock split conducted in late August of 2023.)
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%.
Move forward to the summer of 2023, particularly in July that year. AMC shareholders had good reason to look forward to another rebound. However, a key change in the capitalization of the stock led to a massive decline during August and September.
For long-term holders, the news helped lead to a disheartening finish in 2023 in which AMC stock plunged 83% to 6.12.
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AMC Stock 'APEs' Conversion Whacks Shares
On Aug. 14, 2023, 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 from the share conversion.
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.
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 updated data on a MarketSurge chart, the stock now holds a revised float of 357.7 million freely traded shares.
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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.
How about today? According to MarketSurge, short interest — shares sold short by individual and professional investors — has decreased to 51.3 million shares. That's equal to 14% of the stock's float, down from 19% in July.
Strong future profits or improving cash flow 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.
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Key IBD Ratings
AMC's ratings in IBD Stock Checkup are still showing extremely bearish tints.
They include a very weak 13 Earnings Per Share Rating on a scale of 1 to 99, down from 70 prior to Q4 results. A 16 Composite Rating on a scale of 1 (wizened) to 99 (wizardly) is poor and continues to sink; back in February of 2023, it stood at 76.
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.
Earlier this year, AMC's movies industry group had shot up to as high as 8th among 197 IBD industry groups in terms of six-month price-weighted performance. Now it is a middling 87th.
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 early 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 MarketSurge data. How about lately? AMC is seeing much improved relative strength. The 3, 6 and 12-month Relative Strength Ratings currently stand at 39, 91 and 22, respectively.
The Relative Strength Rating runs from 1 to 99; for investors selecting top growth stocks, the higher the RS Rating, the better the stock in general.
The Accumulation/Distribution Rating shows a solid A- 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. This rating should get a prompt boost.
Meanwhile, mutual funds owning a piece of AMC stock have dropped from 686 at the end of 2021 to as low as 202 as of the end of the second quarter this year, according to MarketSurge.
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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 20.36 buy point with fury. (MarketSurge's change-date function makes it easy to look at historical charts.)
To get this ideal entry in a cup without handle, simply take the cup's left-side high. On May 27, shares rifled past the 20.36 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.
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AMC Stock Now: Is It A Buy Now? Or A Sell?
AMC still sits more than 98% below its split-adjusted high of 393.65 set on June 2, 2021. However, the stock continues to show signs of bottoming out.
One could draw a trendline from the an early May peak of 5.96 on the weekly chart; this generates a highly aggressive trendline entry near 5.15. It's highly preferable to buy a stock no more than 5% past any buy point. In this situation, the 5% buy zone would go from 5.15 up to 5.41.
So at this point, AMC is not a buy now.
However, the recent sideways movement has gone a long way in helping AMC Entertainment generate a new base and a standard entry point of 5.96. Based on recently weekly action, the 27% pullback from recent highs is very healthy. A 40% or 50% drop would suggest that sellers clearly hold the upper hand.
Meanwhile, AMC shares have not experienced a weekly drop in heavy volume since May; this hints sellers are exhausted.
In July, notice too how AMC stock struggled to rise past 5.75; this price level also justifiably serves as a breakout point.
Final Chart Analysis
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.
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
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