AMC Entertainment (NYSE: AMC) shares have been falling recently. I can’t say that I’m really surprised. It’s part of the meme stock trend that has pushed the share price to stellar levels.
But it appears that reality is starting to set in. The stock has now fallen dramatically from its peak level. I covered the the cinema operator last month and said I wouldn’t buy just yet. I still stick with this view.
The valuation remains far too high for me. As I mentioned before, just as the meme stock investors have piled in, they can also easily start selling too. And I think this is just the start of it. I reckon the momentum rally is starting to lose steam.
Despite the recent share price fall, AMC shares remain a hot stock for small investors. I monitor yolostocks.live regularly and the company regularly appears within the top 10 most discussed stocks on Reddit.
In fact, AMC is currently the top trending meme stock according to this website. To me, this means the share price could be volatile going forward.
Clearly, retail traders still have the company in their sights and it doesn’t make sense to me to buy a stock that’s currently over-inflated. That’s especially so for a company that carries a significant amount of debt.
Things are changing
But the environment is improving for AMC. Most of its sites are open and the continued vaccine rollout should help. What’s encouraging is that pent-up demand is starting to show.
The company recently announced that it set another post-reopening attendance record. It helps when high-profile movies such as Black Widow are released. In fact, more big films are due for release, which should help the firm. It should encourage people to go to the cinema for a big-screen experience.
The company has also recently been in the limelight as it shelved its proposal to ask shareholders to allow the cinema chain to issue up to 25m more shares. In a filing with the Securities and Exchange Commission (SEC), it said the proposal has been withdrawn from the agenda for its annual meeting of stockholders.
Previously, AMC had said that it’s looking at share placings to fund potential acquisitions as well as to pay down its staggering debt pile. I’d like to see more focus from the company to tackle its liabilities first.
AMC shares are in a similar predicament to those of Cineworld. The environment seems to be favourable, but the companies are leveraged up to their eyeballs. In fact, according to shorttracker.co.uk, Cineworld shares are within the top five most shorted stocks on the London Stock Exchange. This is where investors are betting that the share price will fall.
For now, I’m steering clear of the stock. I reckon AMC shares could be volatile given their meme stock status.
Nadia Yaqub 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.