Breaking News
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

AMC Entertainment (NYSE:AMC) Stock: What Bears Don’t Understand

Stock MarketsSep 18, 2021 10:45
Saved. See Saved Items.
This article has already been saved in your Saved Items
AMC Entertainment (NYSE:AMC) Stock: What Bears Don’t Understand

AMC Entertainment Holdings (NYSE:AMC) has been one of the best-performing stocks of 2021. Up 2,250% year to date, it has solidly outperformed every relevant benchmark. If you’d invested $1,000 in AMC at the start of the year and held to today, your position would be worth more than $20,000. That’s an impressive result.

Yet some commentators remain unconvinced. Arguing that AMC stock is a fad destined to run out of steam, they counsel their readers not to buy. Their case relies on the fact that AMC’s fundamentals aren’t very good and don’t justify the stock’s current price.

It is true that a conventional valuation model would not support the prices AMC stock trades for in the market. However, commentators who dwell on this point are missing what the “AMC Apes” are getting at. In this article, I will outline the bull case for AMC stock — while stopping short of endorsing it myself — to show that AMC perma-bears are not understanding what bulls are getting at.

The matter of fundamentals Before going any further, I should get one thing out of the way: AMC’s fundamentals are pretty bad. The bears are right about that one thing. Among other things, AMC stock boasts

  • Negative earnings;
  • Losses stretching back to way before the COVID-19 pandemic;
  • Negative equity (more liabilities than assets); and
  • High valuation multiples.
That’s not to say that all of AMC’S fundamentals are bad. The company did boast a strong cash position, smaller losses, and a 2,250% revenue-growth rate in its most recent quarter. But for the most part, AMC bears are right that the stock’s fundamentals are poor. Why then has the stock’s price gone up so much, defying the bear’s predictions?

Why the short squeeze could happen Stocks can go up (or down) for any number of reasons. Stock prices are ultimately a function of supply and demand; anything that causes demand to increase more than supply will cause the price to rise. Among other things, this can happen because of

  • Good publicity;
  • Insider buying;
  • Stock buybacks;
  • Social media mentions; or
  • Short sellers covering their positions.
Any one of these factors can cause a stock to rise. If you look at the Canadian meme stock BlackBerry (TSX:BB)(NYSE:BB), for example, it has more than doubled in price several times this year, despite its earnings releases being less than impressive. The stock always had a group of loyal fans, but this year, it soared to highs that nobody ever anticipated. Put simply, the stock moved based on factors other than fundamentals.

It’s a similar story with AMC. The stock has attracted a following because of a factor not related to fundamentals — namely, high short interest.

AMC stock is known for its high level of short positions as a percentage of float. Various financial data providers report the percentage as

  • 18.7% (MarketBeat);
  • 18.76% (Ortex); and
  • 18.76% (Yahoo! (NASDAQ:AABA) Finance).
This is much higher short interest than the average S&P 500 stock, which has a 1.5% short percentage of float. And the short interest is high enough to produce an appreciable increase in AMC’s price if shorts all start covering at the same time. If their margin interest starts piling up, or if they all panic because of a sharp increase in the stock price, that could very well happen. So, the AMC short thesis is at least credible.

The post AMC Entertainment (NYSE:AMC) Stock: What Bears Don’t Understand appeared first on The Motley Fool Canada.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends BlackBerry.

This Article Was First Published on The Motley Fool

AMC Entertainment (NYSE:AMC) Stock: What Bears Don’t Understand

Related Articles

5 Dividend Aristocrats Perfect for Down Markets
5 Dividend Aristocrats Perfect for Down Markets By The Motley Fool - Oct 24, 2021

Looking for solid stocks to buy in a down market? If so, Dividend Aristocrats are just what the doctor ordered. A Dividend Aristocrat is a stock that has not only paid, but also...

TFSA Pension: 2 Top TSX Stocks to Buy Now for 2022
TFSA Pension: 2 Top TSX Stocks to Buy Now for 2022 By The Motley Fool - Oct 24, 2021

Tax-Free Savings Account (TFSA) investors are looking for attractive stocks to buy for their self-directed retirement accounts heading into 2022. The winners next year could be...

The Best Bank Stock for 2022
The Best Bank Stock for 2022 By The Motley Fool - Oct 24, 2021

The Canadian banking sector has always been fertile ground for steady returns. Banks here are well-diversified, exposed to a real estate sector that’s been booming for three...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email