AMC Entertainment Stock Up 45% Yesterday – Time to Buy AMC Stock?

The price of AMC stock went up 45% yesterday as meme stocks are regaining popularity among retail investors following months of stalled price action and relatively low trading volumes.

In the specific case of AMC Entertainment stock, the company’s Chief Executive, Adam Aron, made multiple comments about the future of the company and mentioned its plans to invest in other businesses similar to the recently-acquired Hycroft Mining Holding Corp – a silver and gold mining company in which AMC invested nearly $28 million this month.

During a phone interview with Reuters, CEO Aron reportedly said that the company is looking for further opportunities to capitalize on its “meme” status. He was possibly referring to the chance of raising money via stock offerings and other mechanisms by taking advantage of the large number of people who devotedly follow the company.

Even though Wall Street is still skeptical about Aron’s approach, the top boss of the global movie theater chain said that the Hycroft deal is a “lucrative” one and that he is looking for more “intriguing investments that have potentially attractive returns”.

In another interview with CNBC, Aron went on to explain the rationale behind the Hycroft transaction. In this regard, he stated: “In Hycroft, we found a company that was exactly like AMC a year ago”.

He added: “It had great assets, in this case silver and gold in the ground, millions of ounces, but it had a cash squeeze, it had a liquidity problem”.

In addition to the $27.9 million invested by AMC Entertainment (AMC), CEO Aron has managed to raise a total of $195 million for Hycroft in a matter of weeks including $56 million from Eric Sprott – a well-known precious metals investor.

What could be expected from this Wall Street Bets stock in light of these latest developments? In this article, I’ll be assessing the price action and fundamentals of AMC stock to outline plausible scenarios for the future.

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AMC Entertainment Stock – Technical Analysis

As a result of yesterday’s sharp uptick, the performance of AMC stock has turned positive with the stock now accumulating a 7.7% gain thus far since the year started.

Meanwhile, AMC has effectively reversed its downtrend as the price action has posted a higher high while rapidly approaching the 200-day simple moving average.

Trading volumes yesterday exceeded the 10-day average by around 4 times and that emphasizes the significant spike in buying interest experienced by AMC as a result of these latest developments.

Moreover, sentiment toward AMC stock within the popular Reddit messaging board Wall Street Bets has been increasing lately, with shares of the movie theater operator now being ranked as the 4^th most mentioned stock ticker, currently accounting for nearly 12% of the total comments made within the site.

Even though AMC stock is moving 5% lower in pre-market stock trading action this morning, it seems that another gamma squeeze could be about to happen as reflected by the price action of other retail favorites such as GameStop (GME).

If the price breaks above the 200-day simple moving average, chances are that the rally may continue in the next few days. However, since the price action of these stocks is typically influenced by multiple technical and behavioral dynamics, they also tend to experience huge negative price swings following these strong run-ups.

With that in mind, investors should make sure they implement appropriate risk management strategies to avoid losing money if the trend suddenly changes its course.

AMC Entertainment Stock – Fundamental Analysis

According to the latest financial report from AMC, the company brought in revenues of $2.53 billion last year and is on track to recover to pre-pandemic levels as the virus situation is progressively taking the back seat in most corners of the world with restrictions being lifted accordingly.

During that period, the company burned around $706.5 million. However, free cash flows turned positive in the last quarter which is a positive indication that the business is once again becoming self-sustainable.

By the end of December 2021, AMC had $1.59 billion in cash and equivalents at its disposal to make the investments that CEO Aron has cited in recent comments. Whether this is the right approach for the business or not depends on who you ask but investors should be aware that diversification to the extent that the company’s core competencies are no longer the top priority may not be positive down the road.

Analysts expect that AMC will fully recover from the hit it took during the pandemic in 2023. However, even in that scenario, the company is still paying a significant amount of money in interest resulting from the debt it took back in 2020 to survive the health crisis – around $415 million. By the end of the year, the company still owed $5.43 billion to debt holders.

At its current market capitalization of $15.2 billion, the market is valuing the firm at nearly 3 times its forecasted earnings for 2023. That multiple seems stretched considering that AMC’s cash flow and profit-generation capacity might continue to be affected by higher interest expenditures.

Moreover, a reduction in AMC’s cash balance as a result of these non-core investments may deteriorate the company’s financial health and the market may not perceive that as a positive sign unless these operations start yielding positive results rapidly.

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