Not many stocks will score you a 2,198% gain in just six months. And yet, that’s the power of AMC stock.
Just a $10,000 investment in the struggling movie theater chain would be worth $229,835 now. That’s an astounding get-rich-fast gain you’d be hard-pressed to find anywhere else. The gain in AMC Entertainment (AMC) makes even last year’s high octane S&P 500 stocks look lame. The same $10,000 plunked down on Apple (AAPL) this year would be worth just $10,783. And $10,000 riding on Tesla (TSLA) is now worth even less: $9,164.
Why all the love for AMC stock? AMC stock is the new poster child for the rally in highly shorted stocks that took off in early 2021. It’s taking the place of GameStop (GME) as the leader in this so-called Reddit rally fanned by enthusiastic retail investors. AMC’s gain, now, surpassing GameStop’s powerful gain this year.
Investors are emboldened as AMC took smart moves to stay afloat during the pandemic. That positions it to benefit from the economy’s reopening, or so investors hope.
“We recognize that it will take AMC years to repay its debt burden, and longer until it is able to revisit its growth strategy,” says Michael Pachter, analyst at Wedbush Securities. “We believe the company has sufficient liquidity to allow it to survive with low utilization through at least (the third quarter), now that most of its highest earning theaters have reopened.”
What Is AMC Stock All About?
AMC Entertainment is a struggling movie theater chain. It’s a difficult spot to be in — especially since people increasingly watch movies at home using one of the many streaming services they subscribe to. Covid-19 also shut down many of the company’s roughly 1,000 theaters and 10,000 screens.
AMC is trying to restructure itself to reposition for a digital era. But it’s an uphill battle. AMC is seen losing an adjusted $1.4 billion, or $3.30 a share, in 2021. That’s better than the $1.9 billion, or $16.15 a share, it lost in 2020. Still, losing money is a big blow to the fundamental story of AMC stock.
Investors, though, are looking longer term. The company is paying down its $5.4 billion in long-term debt. And theaters are opening. Big Hollywood studios, too, are readying compelling films for release in theaters again. Revenue is set to hit $5.2 billion by 2023. That’s just 5% shy of the $5.47 billion in revenue posted in 2019. Losses, though, are seen extending past 2023.
And on May 24, AMC said one of its top shareholders, Wanda Group, sold out nearly all of its position. Wanda is the company that bought all of AMC in 2012 and took it public in 2013. Now no single shareholder owns more than 10% of the company. Meanwhile, the company is attempting to lure back moviegoers with new promotions.
AMC Stock: Turning A Meme Into Reality
But AMC’s management is turning its meme popularity into real financial firepower. The company sold an additional $230 million worth of its highly valued stock in June. That cash infusion will help it cut debt further and invest in its properties. But the buyer of the stock, Mudrick Capital, sold it immediately calling it overvalued. It announced another stock sale on June 3. S&P Ratings recently boosted its credit rating on the stock.
AMC Stock Not In The S&P 500, But How Would It Rank?
AMC Entertainment is luring lots of attention to its stock. And following the big jump in share value this year, the company is now worth more than $25 billion.
And that means AMC stock’s market value would rank roughly No. 250 within the S&P 500 index of large-cap stocks. But even so, it’s not in the S&P 500. Nor is it listed in any major stock market index. Some might see this as an opportunity, though. If the company can turn itself around and join a stock market index, large investors might be compelled to buy AMC stock.
Would Anything Make You Richer, Faster?
AMC stock is in a class of its own making investors big money this year. Its gain on a $10,000 investment ranks No. 1 of any stocks in the S&P 500, S&P Midcap 400, S&P Small Cap 600 or S&P Completion Indexes this year.
AMC, amazingly, pushed GameStop aside as the meme stock to own. GameStop is “only” up 923% this year. If you put $10,000 into GameStop stock this year, you’d have $102,335 now. Should you invest in GameStop stock now?
Is AMC Stock A Good Buy?
So should you buy AMC stock now? Savvy investors know to analyze the stock chart and fundamentals before jumping in.
AMC stock’s price action is certainly bullish. It carries a 99 IBD RS Rating, says IBD’s Stock Checkup. This tells you it’s beating 99% of all other stocks in terms of price gains. But as mentioned above, the company loses money and is expected to continue doing so for years. That drags its IBD Composite Rating down to a mediocre 64.
Just know while it’s fun counting your newfound riches on AMC stock and other highly shorted stocks now, you need to have rules to follow if the trade goes the other way. Successful investors know it’s better to use time-tested rules to buy top growth stocks instead.
But right now, AMC stock investors are just enjoying their spoils.
Which Stocks Turned $10,000 Into The Biggest Gains?
S&P 1500 stocks up the most this year so far
|Company||Symbol||Stock YTD % ch.||What $10,000 invested this year is worth now|
Sources: IBD, S&P Global Market Intelligence
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