- AMC shares are up over 500% in 2021.
- AMC has been boosted by sentiment not reality.
- AMC shares are trading on huge multiple for a huge debt pile.
AMC shares have been one of the trends of the stock market year so far with a huge appreciation. AMC shares are up 557% year to date for 2021 and this is despite the sharp fall from January highs. AMC shares are up 152% in the last month alone.
AMC operates cinema theatres globally and understandably has suffered as a result of the pandemic. AMC operates in the US and Europe with theatres in 44 US states and 13 European countries.
AMC Stock News
AMC is in a strong cash position having raised cash during the crisis to fund future operations. In some respects, the spike in AMC shares on the back of strong retail interest may have helped the company to survive as it enabled AMC to raise capital.
On January 25 AMC “announced today that since December 14, 2020, it has successfully raised or signed commitment letters to receive $917 million of new equity and debt capital. This increased liquidity should allow the company to make it through this dark coronavirus-impacted winter”. Adam Aron, AMC CEO and President, said, “Today, the sun is shining on AMC. After securing more than $1 billion of cash between April and November of 2020, through equity and debt raises along with a modest amount of asset sales, we are proud to announce today that over the past six weeks AMC has raised an additional $917 million capital infusion to bolster and solidify our liquidity and financial position. This means that any talk of an imminent bankruptcy for AMC is completely off the table.”
Why is AMC stock going up? Well because of this it meant that AMC would be able to survive the pandemic when many “shorts” were betting it would not”. This led to a large spike in prices as AMC shares had to be bought back by shorts to cover their positions. Retail frenzy also reached a fever pitch in AMC and Gamestop around this time. All this led to a huge AMC share price rebound from below $6 to over $20 as retail traders piled into the stock.
Since then AMC shares have remained supported by the retail investment community as AMC remains the first or second most trending stock on Twitter, /wallstreetbets, and other retail sites. The short interest remains high at 16% but this has come down from over 30% in the early stages of the /wallstreetbets short squeeze.
AMC Stock Forecast
AMC shares are way too high, there is no other way to be blunt about it. This is not investible in my opinion. Short-term traders can make money just from the price movement but those expecting the shares to double or quadruple and remain there for the long term are highly likely to be disappointed.
AMC nearly went bankrupt during the pandemic crisis but managed to raise cash to avoid this. In doing so it has dramatically diluted shareholders by issuing fresh capital. AMC’s number of shares has nearly quadrupled during the pandemic crisis and as the share price has appreciated AMC’s market capitalization has ballooned. It is now nearly trading at a record high valuation by market capitalization standards as well as nearly every other metric.
AMC has a huge debt burden as it has increased its debt pile. AMC has huge rents which it has managed to defer but these will soon become due as theatres open up. AMC in the good days of cinema-going struggled to make a profit as it was and that is why it was targeted by short-sellers. The financial situation has worsened since then, more debt, more dilution. AMC would need to dramatically increase its revenue to meet increased debt repayments alone. AMC has $5.8 billion of debt to repay, up from $1 billion in 2019.
AMC probably needs to reopen every cinema globally and basically probably sell out every cinema for every movie for every day and even then this may not be enough. 2019 was a high point in terms of revenue creation for AMC but even then it could not turn a profit. I don’t see what has changed. Demand may be pent up but not enough.
Too fast too furious and too high for me. It doesn’t make sense. Short-term investments don’t need to make sense but long-term investments do.
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