AMC stock is in a deep slumber; is a short squeeze coming?

AMC Entertainment’s (AMC) stock price has moved sideways in the past few months as investors assess its performance. It has remained at the $4 mark since May, meaning that it has dropped by 30% this year. 

AMC bonds are also not doing so well. As shown below, the yield of its June 2025 bonds has risen to 99.3%, meaning that prices have dropped sharply. The yield of the November 2026 bonds has risen to 89.2%. 

The company has underperformed Cinemark, another big movie theatre company, whose stock has jumped by 115% from its lowest point this year. 

AMC has made some progress

AMC Entertainment has become one of the top fallen angels in corporate America. A fallen angel is a company that performed well in the past but whose performance has since lagged behind the market.

AMC’s entry into the fallen angel category accelerated during the Covid-19 pandemic when it was forced to shut down its locations. As a result, it had to increase its borrowing to fund its operations. 

The company benefited in early 2021 when it became one of the top meme stocks. At the time, its stock soared to a split-adjusted level of $392, helping the management to raise cash to reduce its debt. 

AMC then did well in 2023 as demand for top movies like Barbie, Oppenheimer, and Taylor Swift’s Eras tour pushed its revenues up sharply. It made over $4.8 billion in 2023, up from $3.9 billion a year earlier. This performance also helped it to reduce its net loss from $973 million to $396 million. 

The challenge, however, has been to replicate last year’s success in 2024. Some of the top-selling Box Office movies were Inside Out, Godzilla x Kong, Kung Fu Panda, Deadpool & Wolverine, Dune: Part 2, and Despicable Me. 

On the positive side, AMC Entertainment’s results have shown that there is still demand for Box Office movies. Its second-quarter revenue dropped to $1.03 billion from $1.34 billion in the same period last year. 

Also, its half-year revenue of $1.98 billion was lower than the $2.3 billion in 2023. In my view, this is a strong performance considering the impact of last year’s strikes in Hollywood.

Dilution and free cash flow

The main reason why AMC Entertainment stock has crashed is that the management has diluted its shareholders significantly in the past few years. 

Dilution happens when a company issues new shares, thereby, reducing the ownership stake of existing holders. It also reduces a company’s earnings per share. 

The most recent 10Q report shows that the firm had 321.5 million outstanding shares, a big increase from 151.3 million in the same period in 2023. Data by TradingView shows that it had about 5.9 million outstanding shares in 2020.

AMC has had to dilute investors to reduce its mountain of debt. Over the years, it has paid billions of dollars in debt, bringing its current corporate borrowings to $4.2 billion and its lease liabilities to $3.7 billion. 

A key concern among investors has been its upcoming maturities, which are substantial. For example, debts worth over $2.6 billion were to mature in 2026 before the company expanded the maturity to 2019. 

The company will pay its maturities in 2026 using some of the funds in its balance sheet. It ended the last quarter with $770 million in cash and equivalents and $1.075 billion in current assets. 

The challenge is that it is still burning substantial sums of money, which will erode its cash balances.

Read more: AMC stock price forecast: buy, sell, or hold?

AMC stock outlook

AMC chart by TradingView

AMC Entertainment runs a quality franchise that will likely continue doing well even as more customers shift to streaming. Most studios like Disney and Warner have all committed to release theatrical movies in the future. 

The company is still burning cash, and its upcoming results will provide more details about this. Analysts expect that its sales will come in at $1.34 billion, also a drop from the $1.4 billion it made last year. 

AMC is also expected to lose 7 cents a share, a drop from the 8 cents it made last year as the Barbie and Oppenheimer demand rose. 

Analysts expect that its annual revenue in 2024 and 2025 will be $4.63 billion and $5.19 billion, respectively. Its annual loss per share will improve from 83 cents to 49 cents this year. 

The daily chart shows that the AMC stock price has moved sideways in the past few months as its short interest has risen to 16%. 

It has moved below the 50-day and 25-day Exponential Moving Averages (EMA), while the Average True Range (ATR) has retreated to its lowest point since May 9. The Relative Strength Index (RSI) has remained below 50.

Therefore, AMC shares will likely remain in this range as traders wait for the next earnings on November 6. I believe that this consolidation could lead to a strong upside, which may push it to $5.93, its highest point on June 6. 

Read more: AMC stock nears the make or break price: buy or sell?

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