AMC Entertainment stock could be going up again

Is it time to invest in AMC Entertainment (NYSE: AMC) stock? There could be a short squeeze on AMC and that’s why I’m waiting for the dip.

| 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.

To understand why I think AMC Entertainment (NYSE: AMC) stock will be worth buying again, it’s important to know what a short seller and a short squeeze actually is.

A short seller is someone who borrows shares of a stock from a broker. This stock is then bought by a buyer who is willing to pay at market price. The short seller is hoping that the price of the share drops so that they can buy back at a lower price and turn profit.

A short squeeze occurs when short sellers decide to close their position to cut their losses because the stock price has risen. Their exit pushes the share price higher and attracts even more buyers, which can lead to an astronomical jump in price.

What will cause a short squeeze on AMC Entertainment stock?

There are many reasons for the anticipation of a short squeeze on AMC Entertainment stock and this is why I am looking to invest:

  • On July 6th, AMC closed at US$49.96. AMC’s price is continuing to rise because of its volume, regardless of the attacks from short sellers. If the price proceeds in this trajectory, short sellers will have to close to cut losses.
  • Hedge funds like Melvin Capital are losing big because they are short selling meme stocks like AMC and GameStop. This means hedge funds will need short sellers to close their positions to stop further suffering.
  • AMC is not a dead company. It is generating good revenue with US$2.2 billion in cash.
  • The roll out of vaccinations and lifting of restrictions means a return to normal for cinema goers.
  • AMC is the most shorted stock on the market.
  • AMC’s short borrow fee (this is the interest shorts pay for borrowing AMC shares) hasn’t stopped rising.
  • AMC’s Q1 report shows earnings improved from Q4 2020.

These are all great signs for holders and new buyers of AMC Entertainment stocks. The hardest part for me is timing my investment correctly so that I can benefit just before the short squeeze occurs. By watching for that dip in the market, I believe there will be a profitable opportunity for me to join in on this super successful meme stock

Will I invest?

Investors in AMC Entertainment stocks should recognise its volatility and high risk/high reward status. Large amounts of these shares will be sold and bought every day and that can cause the price to act unusually and erratically. I only invest money in meme stocks like AMC that I can afford to lose. 

However, there is a lot of excitement and speculation around the potential short squeeze of AMC Entertainment stocks. This Fool will be investing in AMC Entertainment after the price dips because I believe there will be a short squeeze and a huge surge in share price in the next few months.

Note: To buy US stocks you will need to complete a W-8BEN form with your broker.

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.

John Town 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 »