As the AMC Entertainment share price falls further, should I buy?

I missed a chance to buy before the early surge. But now the AMC share price is weakening, I’m taking a closer look at this US stock.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

AMC Entertainment (NYSE: AMC) is off to a weak start in July. The AMC share price closed Wednesday at $45, down 20% on the month so far. And since a 2021 high of a shade over $72 in early June, we’re looking at a loss of 37.5%. But if there’s any stock where we need to look at the bigger picture, this is it.

After an astonishing climb in May, AMC shares are still up nearly 1,000% over the past 12 months. So what’s happening, and should I buy? Is it a growth stock offering me a buying opportunity after missing it earlier in the year? Or is it a bubble waiting to burst, that has already started leaking?

I’ll start by summing up what’s happened. AMC is what’s becoming known these days as a ‘meme’ stock. I’ve seen plenty of investing fads come and go in my time, with small investors jumping on short-term bandwagons. But this is a bit different, thanks to the effect of social media. In particular, it’s down to a Reddit group known as ‘WallStreetBets’.

AMC share price targeted

AMC is a US cinema chain, and it suffered badly during the Covid-19 crisis. To make things worse, short sellers hit it hard, expecting the AMC share price to fall ever further. That’s when the Reddit crowd stepped in, encouraging each other to buy, and push AMC shares upwards. It created a ‘short squeeze’, which forces short sellers to buy to cover their losing positions. And that, in turn, pushes the price up even further.

There’s also been a thing called a ‘gamma squeeze’, which my Motley Fool colleague Edward Sheldon has explained. It’s a further squeeze based on call options, and it just pushes the price up yet again.

Some investors have made big profits on AMC Entertainment in the past few months. And plenty, especially the short sellers, will have lost a packet. So are there any gains I could make by buying now, especially with the stock weakening?

More gains to come?

Well, there does appear to still be a fair bit of short interest. So I could maybe make some money if the short squeeze takes off again. On the other hand, shorters buying in at today’s high prices might have called it just right. If the AMC share price does collapse in the coming weeks and months, they might pull off the short of the century.

I don’t go in for short-term trading like this at all, so I’m out for that reason. But the sad thing is that I think the company itself could be set for a turnaround. The US is opening up, and I reckon we could easily see a few years of strong earnings growth for AMC. If it wasn’t for all this short-selling and Reddit meme business clouding the issue, I’d be looking seriously at the stock.

I’ll leave the last word to AMC itself, which warned last week: “Under the circumstances, we caution you against investing in our Class A common stock unless you are prepared to incur the risk of losing all or a substantial portion of your investment.”

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 75% in 5 years, I reckon this FTSE 250 still has lots to give!

Our writer explains why this FTSE 250 stock could still continue to provide growth and returns despite already being on…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 high-quality FTSE 250 stocks to consider buying

The FTSE 250 is home to some of the best investment opportunities out there. This Fool highlights two stocks for…

Read more »

Investing Articles

The Marks and Spencer share price dips! Is this my chance to buy?

Marks and Spencer was one of the hottest stocks on the market last year. With its share price falling in…

Read more »

Growth Shares

How low could the boohoo share price go?

Jon Smith explains why the enterprise value and the low risk of bankruptcy should help to prevent the boohoo share…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Down 23% in a year! Can the Diageo share price regain £30 in 2024?

This Fool UK writer is checking the charts to see if the Diageo share price can recover from the recent…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

I wouldn’t touch this FTSE 100 stalwart with a bargepole

Despite looking like a bargain on paper, this Fool is avoiding FTSE 100 constituent Vodafone at all costs. Here he…

Read more »

Investing Articles

I’m waiting for the Rolls-Royce share price to pull back before I buy

The Rolls-Royce share price has been the Footsie's best performer in the last year. But this Fool has no intention…

Read more »

Front view photo of a woman using digital tablet in London
Dividend Shares

2 dividend stocks to take me from £0 to £9.5k in second income

Jon Smith talks through some ideas with second income potential, including one stock that has a dividend yield above 10%…

Read more »