Is AMC stock on the move again?

Investors who remember the meme stock frenzy of 2021 will wonder if the same can ever happen again. With AMC stock volatile again, is a rally coming?

| 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.

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.

Image source: Getty Images

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.

Entertainment group AMC Entertainment (NYSE: AMC) has been a roller-coaster ride in recent years. After a meteoric rise in 2021 fuelled by the ‘meme stock’ frenzy, the company’s share price has fallen away significantly. But with recent box office successes and a renewed enthusiasm in meme stocks, investors are wondering: is AMC stock on the move again?

The business

The entertainment industry, heavily impacted by the pandemic lockdowns and streaming service dominance, has shown tentative signs of recovery. Summer blockbusters and a swell of new releases following the pandemic have brought audiences back to the big screen, bringing a much need boost to revenue.

However, financial health remains a major concern. The company accumulated significant debt during the pandemic to stay afloat. While steps have been taken to reduce it through stock offerings, the burden is still substantial. This debt limits the ability to invest in upgrades and new technologies, which could be crucial for attracting customers in the long run in a competitive landscape.

Interestingly, a discounted cash flow calculation suggests the share price could be as much as 56% undervalued. However, with such a drop from the peak, I can fully understand why the market would be hesitant in trusting any one metric to make a decision.

Fundamentally, the business is still unprofitable. With this unlikely to change any time soon, the share price may have some further declines ahead, unless the events of 2021 repeat themselves.

The meme influence

The meme stock phenomenon of 2021, where retail investors banded together to drive up share prices, played a significant role in AMC’s story. While it provided a much-needed financial boost, it also led to high volatility and a disconnect between the stock price and the company’s fundamentals. This volatility continues to make this a risky investment, since traditional metrics such as the price-to-sales (P/S) ratio seem to matter less to some.

With Keith Gill, one of the key players in the 2021 Gamestop frenzy, now back in the public eye, meme stocks have seen tremendous rallies in the last few days. Many have now declined significantly, but volatility is certainly back on the menu.

The next move

As we learned in 2021, the next move for these stocks is almost impossible to predict. There may be ferocious rallies ahead, but the declines can be just as aggressive. Clearly the business itself is in a difficult position, but the influence of online communities to move the stock price is a whole other animal.

For me, I don’t want to touch AMC stock. I vividly remember the frenzy and chaos from 2021, and as much as many investors will do well with some luck, I don’t want to fall into the trap of chasing a rally, and potentially only seeing the decline.

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.

Gordon Best 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

No savings? I’d use the Warren Buffett method to target big passive income

This Fool looks at a couple of key elements of Warren Buffett's investing philosophy that he thinks can help him…

Read more »

Investing Articles

This FTSE 100 hidden gem is quietly taking things to the next level

After making it to the FTSE 100 index last year, Howden Joinery Group looks to be setting its sights on…

Read more »

Investing Articles

A £20k Stocks and Shares ISA put into a FTSE 250 tracker 10 years ago could be worth this much now

The idea of a Stocks and Shares ISA can scare a lot of people away. But here's a way to…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

What next for the Lloyds share price, after a 25% climb in 2024?

First-half results didn't do much to help the Lloyds Bank share price. What might the rest of the year and…

Read more »

Investing Articles

I’ve got my eye on this FTSE 250 company

The FTSE 250's full of opportunities for investors willing to do the search legwork, and I think I've found one…

Read more »

Investing Articles

This FTSE 250 stock has smashed Nvidia shares in 2024. Is it still worth me buying?

Flying under most investors' radars, this FTSE 250 stock has even outperformed the US chip maker year-to-date. Where will its…

Read more »

Investing Articles

£11k stashed away? I’d use it to target a £1,173 monthly passive income starting now

Harvey Jones reckons dividend-paying FTSE 100 shares are a great way to build a long-term passive income with minimal effort.

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

10% dividend increase! Is IMI one of the best stocks to buy in the FTSE 100 index?

To me, this firm's multi-year record of well-balanced progress makes the FTSE 100 stock one of the most attractive in…

Read more »