Up over 20% in July alone, AMC stock is back trading above $16. How can it keep going higher?
Business Fundamentals Near Pre-pandemic Levels
Let's start with AMC's business fundamentals.
The movie theater chain is reporting a recovery after being hit hard by COVID lockdowns. It would seem AMC's management is taking the new internal motto — "Recovery, Agility, and Transformation" — to heart.
Although attendance figures have not yet reached pre-pandemic levels, there are many indications that this should happen soon
AMC's revenues reached 65% of pre-pandemic levels last quarter. This represented AMC's best first quarter in two years. Compared to last year, revenues grew five times, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) grew 80%.
AMC's management blamed the timing of theatrical releases for what it considered weak first-quarter (Q1) results. However, they remained confident that AMC would post record attendance numbers in 2022.
In the second quarter, (Q2), the success of Top Gun: Maverick was an indication that moviegoer attendance is in line with AMC's expectations for the year as a whole. Thanks to this film and other recent box-office hits, Q2 attendance numbers should come in well above Q1.
Also, more recently, the third quarter (July to September) has already started breaking box-office records. Data from Box Office Mojo shows that domestic box-office revenues in Q3 reached $768.27 million by July 19, surpassing the last five years' gross revenues for the same period.
CEO Adam Aron has confirmed that Q3 started strong for AMC, as well. In the second weekend of July, 5.9 million moviegoers visited AMC theaters:
Short Sellers Have Pulled Back
With box-office numbers proving that the business is healthy and that AMC's fundamentals are improving, the bears among the so-called “smart money” have taken a break.
While financial experts still think AMC's stock valuation is irrational, we've seen a decrease in confidence among short sellers who were once certain that betting against meme stocks was a sure win.
Even AMC bears like Wedbush analyst Alicia Reese are warning that shorting AMC at the moment is a risky move, considering the company's fundamentals are in their best shape since the pandemic. "As an industry play, it doesn't seem like it's a great time to short," Reese said recently.
At the end of May, about 109 million AMC shares were being shorted. The latest data for the end of June shows that about 101 million AMC shares were being shorted, which represents a short interest of just under 20% of the stock's float.
This easing of selling pressure has likely been a driver of AMC's recent rally.
AMC's Waiting for a "Pounce”
AMC shareholders got an extra dose of euphoria after CEO Aron set a date for a possible "pounce" on AMC short sellers. The CEO's not-so-subtle message probably refers to a possible short squeeze, which Aron says could occur after the company reports its second-quarter earnings on August 4:
Who knows? This could be an indication that AMC is about to reveal good news regarding its financials. Maybe it has already reached pre-pandemic attendance levels for the first time since COVID.
Retail investors will likely continue to buy shares of AMC, as FOMO (fear of missing out) continues to have a positive effect on the stock's trading volume. Thus, AMC should continue to climb until the company's earnings report in the first week of August.
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