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$AMC Entertainment(AMC)$

AMC Entertainment keeps surprising its critics. Here are three reasons why AMC stock is a buy

AMC Entertainment (AMC) - Class A Report had an eventful March. The movie theater company's stock closed the month with gains over 30%, thanks to news the company had acquired a major stake in a gold mine, along with positive trends in the broader market.

So far in April, AMC has cooled down. Looking only at its valuation, Wall Street has been skeptical about the future of the stock.

But we often go against the Wall Street grain. So let's take a glass-half-full look at AMC.

1. AMC's Financials Are In Great Shape

In March, AMC's management announced that the company had enjoyed the best quarter of the last two years. And although the nearly 60 million moviegoers who bought tickets represented only 64% of pre-pandemic levels, the fourth quarter indicated it's only a matter of time before ticket sales are back to normal.

On a year-over-year basis, revenue increased by 620% in Q4. Drink and food revenue reached 87% of pre-pandemic levels, to an average of $6.38 per patron. That's quite a bit better than the $4.74 per person AMC made in the fourth quarter of 2019.

But perhaps the best news was that AMC achieved positive earnings before interest, taxes, depreciation, and amortization (EBITDA), as well as positive operating cash flow. Thanks to the effect of the COVID pandemic on the movie theater business, AMC's balance sheet had been a big concern.

Of course, AMC has a lot to thank its loyal shareholders for. Because of their stock purchases, management was able to raise a little over half a billion dollars in cash to shake off the specter of bankruptcy.

And now with about $1.8 billion in liquidity and cash flowing in, AMC no longer has to worry about playing defense. Instead, it can think about growth.

2. AMC's Management Has a Long-Term Growth Plan

CEO Adam Aron has a plan to generate long-term value for AMC and its shareholders. His goal is to match AMC's high valuation with its company fundamentals.

The money raised from AMC's share price appreciation has been and will be used for three main initiatives:

1)Investing in the infrastructure of its core business, the movie theaters

2)Paying down company debt

3)Investing in mergers and acquisitions with a view to the company's future growth

AMC has already announced investments in its movie theaters, such as upgrading its IMAX and Dolby Cinema premium screens. The company is also starting up NFT programs and accepting payments via cryptocurrencies — moves that should attract a young, tech-savvy audience.

As for the second goal, AMC is in the process of discussing refinancing its $5 billion debt with various stakeholders to reduce future interest payments.

And finally, thinking about future investments, AMC has bold plans to retail its branded popcorn. It also invested in gold and silver mining company Hycroft (HYMC), which CEO Adam Aron sees as a long-term source of profit.

3. AMC Has "Meme Stock" Power

The so-called "smart money" has criticized the meme frenzy that kicked off in early 2021. But more than a year later, this trend still continues and has wreaked havoc on hedge funds that bet against AMC stock.

Meme stock investing is characterized by retail investors betting on stocks not due to their business fundamentals, but instead to defeat short sellers. AMC has been one of the meme darlings and has remained popular on Reddit's meme stock-trading threads.

Thanks to meme investors, AMC stock has returned an incredible 1,060% since the beginning of last year. Their unwavering buy-and-hold optimism and demand for the stock have essentially rendered AMC's business fundamentals irrelevant.

Currently, short interest in AMC is rising — more than 20% of the stock's float, according to the latest data from Yahoo Finance. So there's a good chance that meme investors could provoke a new short squeeze and send AMC's stock back to stratospheric levels.