The Motley Fool

AMC share price: can it hit the short sellers again?

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.

A brochure showing some of Lloyds Banking Group's major brands
Image: Lloyds Banking Group

The AMC (NYSE: AMC) share price currently stands at $33. This represents a 1,550% increase on its $2 low on 5 January. It’s also a near 50% fall from its high of $62 on 2 June. It’s safe to say that the share price is volatile. 

AMC benefitted from meme stock status earlier this year. Major hedge funds shorted AMC’s share price, making a bet that it would fall. Millions of young retail investors conspired on Reddit to buy shares, driving up the price.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

When the AMC share price rocketed in May, many hedge funds had to settle their short positions for huge losses.

With 15.95% of AMC shares still shorted, could hedge funds be hit again?

Promising Q2 results

After being punished heavily by the pandemic, recent Q2 results look a lot more promising. 22m cinema visitors generated $445m in revenue, a figure almost 24 times higher than in Q2 2020. However, this was only 45% of the revenue seen in Q2 2019.

Losses were reduced to $344m down from $561m in the same quarter last year. 36% of revenue was from high margin food and drink sales, suggesting that customers are still happy to spend on extras.

There’s more good news. As AMC cinemas only reopened in June, this revenue only accounts for one month of the quarter. And with 51% of the US population fully vaccinated, it seems unlikely to me that future lockdowns will be necessary. 

Bitcoin for popcorn

US AMC cinemas will soon be accepting Bitcoin as payment in lieu of dollars. This strategy could appeal to new millennial investors, and it’s not alone in beginning to accept the cryptocurrency. Microsoft, AT & T, and Wikipedia are all getting involved. 

CEO Adam Aron also took advantage of the meme stock rally to sell new shares in the business, generating $2bn in cash. However, the number of shares has almost quintupled from 104m to 480m, making the chances of another Reddit-fuelled short squeeze far less likely. Such a large increase could also damage future earnings per share. And there’s no guarantee that more won’t be sold to create even more financial breathing room. 

Risky business for the AMC share price

AMC was only worth 5% of its $17bn market cap just six months ago. It has a net debt mountain of $3.7bn that’s impossible to ignore. FY revenue for 2019 was some $5.5bn, so sales would have to grow exponentially to get back to that level. 

The popularity of streaming also poses risks. The simultaneous release of blockbusters such as Black Widow in cinemas and on Disney+ could easily harm future profitability. However, The Suicide Squad’s low box office revenue being blamed on piracy, and a lawsuit from actress Scarlett Johansson could spell an end to the practice.

Already, some post-pandemic new releases are promised to be initially in cinemas only, including Free Guy and James Bond: No Time To Die. Moreover, AMC and Warner Bros recently agreed that from 2022, films would be shown exclusively in cinemas for 45 days.

It remains to be seen whether another short squeeze can occur, but I’m a long-term investor. I don’t see the current AMC share price as a reasonable entry point right now. I think there’s every chance it could fall further, at which point a small speculative position might be worth it for me.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Charles Archer has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Walt Disney. 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.

The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.