Should You Buy AMC Stock?
While some may consider movie theaters to be a dying industry, AMC has seen an unexpected revival this year. Read to find out if investing in this so-called “meme stock” is the right move for you.
Originally published on Zinvest: zvstus.com/blog/should-you-buy-amc-stock
If you live in the US, chances are you’ve been to AMC. With a market capitalization of $17.66B, AMC Entertainment currently has the largest share of the US theater market, well ahead of competitors like Regal and Cinemark. But despite its prominence in the movie theater industry, AMC stock had been on a slow and steady decline even prior to the Covid-19 pandemic.
The decline of AMC parallels a general downturn of public enthusiasm for movie theaters. With streaming services such as Netflix and YouTube offering new films at only a fraction of the price of a theater ticket, interest in going to the theater had been waning for quite some time. Then Covid happened, and things only got worse.
The company, however, has since proven to be no ordinary stock. With the help of online investment communities, AMC shares have recently peaked at heights no one ever would have expected. In this guide, we will discuss how this happened, the future for AMC, and most importantly, whether or not you should begin investing in the stock.
How to Buy AMC Stock
Before we analyze AMC stock, let’s quickly go over how to buy it. If you’ve invested before, you can skip this tutorial. However, if this is your first time investing, welcome! We hope to make your experience buying shares of AMC, as well as other stocks, as easy as possible.
AMC stock is listed as AMC on the US-based stock exchange New York Stock Exchange. NYSE stocks can be traded internationally, so as long as your country doesn’t impose trading restrictions, you can buy them from anywhere in the world. Below are the steps you’ll need to take to purchase AMC.
Choose An Online Broker
While AMC is listed on the New York Stock Exchange, you are not going to buy shares from NYSE directly. Instead, you’ll purchase the stock through a brokerage, a financial service provider that acts as a middleman between the stock exchange and investor. Here you can buy and sell securities.
Not every brokerage lists AMC, so you will need to find one that does.
Transfer Funds to Your Brokerage Account
Now that you’ve chosen your brokerage, download its app and fill out the necessary information to create an account. This typically includes your name, address, email, and a photo of your identification card.
Once you’re past the approval process, you can transfer funds to your brokerage account. Simply enter your bank account number or debit/credit card number and input the amount of money you’d like to transfer. We suggest that first-timers start small, as you should never invest more than you can afford to lose.
Choose An Order Type
Now that you’ve got funds in your account, it’s time to buy AMC. Use your brokerage’s search function to find AMC. Select “Buy” and enter the amount of shares you want to purchase. (To reiterate, do not invest more than you can afford to lose.)
You will typically be given the option of two order types: market orders and limit orders, both of which are explained below.
Market Orders: The quickest of the two, market orders execute your transaction at the current market price. So, if AMC is sitting at $50, and you buy two shares, you will pay $100.
Limit Orders: A limit order lets your broker know that you are not willing to purchase the stock above a certain “limit” price. For example, if AMC is trading at $50, you could set a limit order of $49. If your broker is able to fill this order, it will. However, if by the end of the current trading session, the price of TSLA still exceeds $49, your order will not be filled.
While limit orders can be used as an investment strategy. If you want a guarantee that you’ll receive your stock, we recommend market orders.
Select your order type and hit submit. Give your brokerage a bit of time to process your transaction, and voilà! You now own shares of the world’s largest theater company.
AMC’s Historic Short Squeeze
Even prior to Covid, AMC — as well as the rest of the movie theater industry — was beginning to lose momentum. After peaking in 2002, annual movie ticket sales began a slow downward trajectory. This was mainly due to the shifting paradigm of how we consume entertainment, as well as the ever-increasing prices of movie tickets.
People understandably did not want to pay ~$10 (plus concession prices) to watch a movie that they could see for far less money from the comfort of their homes. In fact, even during the pandemic, a survey by Variety showed that 70% of consumers would rather watch movies at home after theaters open back up. Only 13% of surveyees said that they were “likely to watch at a theater” once the pandemic ends.
For AMC, Covid could not have come at a worse time. The forced closure of theaters across the world meant little revenue, and over the course of the year, AMC stock sank dramatically, falling as low as $1.98 per share in January.
Many investors worried that the company would soon file for bankruptcy. This concern was justified: according to an October 2020 article by CNBC, “AMC warned investors that it may have to file for Chapter 11 bankruptcy if it is unable to secure additional sources of liquidity.”
At the end of January, retail traders flocked to buy AMC, all thanks to a Reddit community called WallStreetBets.
WallStreetBets used herd investments to pump up the prices of low-valued stocks, such as AMC and GME. Some members of the community became overnight millionaires at the expense of Wall Street hedge funds who were short sellers of stocks like AMC.
- Note: the term herd investment refers to when a crowd of investors mass-purchases shares of a stock, driving up its price. In the case of AMC, the Reddit community WallStreetBets, which at the time had roughly 4 million members, collectively decided to buy AMC, causing shares to skyrocket. As a result, AMC is considered by some to be a “meme stock.”
From January 25–26, the share price of AMC shot from $4.96 to $19.90, essentially saving AMC from bankruptcy. The importance of WallStreetBets’ was perhaps best explained by Matt Levine of Bloomberg, who had the following to say:
“Yesterday holders of $600 million of AMC convertible bonds converted them into stock at a conversion price of $13.51 per share. Six hundred million dollars of debt, vaporized by Reddit enthusiasm… A week ago it was not crazy to think this company was doomed; now it is entirely possible that it will survive and thrive and show movies in movie theaters for decades to come because everyone went nuts and bought meme stocks this week.”
In the months following, AMC stock leveled out a bit, mostly remaining in the ballpark of $10 a share.
But in late May, another WallStreetBets pump occurred, this time pushing AMC to all-time highs, with the stock price peaking at $62.55 on June 2. At the time of writing, AMC sits at roughly $34. (It should be noted that these spikes may also be partly due to the fact that movie theaters across the world are finally opening back up.)
Some experts warn that these exorbitant share prices are indicative of a “bubble” that is bound to burst sooner rather than later.
- Note: According to Investopedia, a bubble is a trend in the stock market that is “characterized by the rapid escalation of market value, particularly in the price of assets. This fast inflation is followed by a quick decrease in value, or a contraction, that is sometimes referred to as a ‘crash’ or a ‘bubble burst.’”
Financial Analysis
While the short squeeze of AMC has dominated the news, let’s take a look at something less talked about: what is AMC currently doing on its own to increase revenue?
What Is AMC Doing to Weather the Storm?
AMC is well aware that even with help from WallStreetBets and the reopening economy, there is a tough road ahead. People’s preference to watch movies at home hasn’t changed, and with the pandemic barely behind us, many are unable to afford the full moviegoing experience. So what is AMC doing to provide a better future for themselves?
Strategically Capitalizing on the WallStreetBets Phenomenon
CEO Adam Aron has been vocal about his appreciation for the Reddit community that gave his company a lifeline. During an earnings call in May, he stated, “These individual investors likely own a majority of our shares… They own AMC. We work for them. I work for them.”
Aron and AMC announced plans to donate $50,000 to the Dian Fossey Gorilla Fund, an obvious tribute to the retail investors pumping AMC, who refer to themselves as “apes” and refer to Aron as “Silverback,” a word used to describe an older male gorilla.
The company even went as far as to postpone its shareholder's meeting as a means to “provide additional time for its millions of current individual shareholders to have their voices heard and more time to cast ballots on important shareholder matters.”
AMC is essentially “embracing the meme,” and it is to their benefit. Without its apes, the company could easily have gone bankrupt. The company also took advantage of its increased share price by selling more than 8 million shares to Murdick Capital Management. According to a securities filing, AMC garnered $230.5 million from the sale.
Focusing on Expansion
With the money made from the sale to Murdick Capital Management, AMC is focusing on M&A (mergers and acquisitions). According to Aron, “AMC is being presented with highly attractive theatre acquisition opportunities. We are in discussions, for example, with multiple landlords of superb theatres formerly operated by Arclight Cinemas and Pacific Theatres.”
AMC has received its share of criticism for this: many experts believe that the company should prioritize paying off the debt and unpaid rent that it accumulated during the pandemic. It has also been pointed out that maintaining these new acquisitions will be costly.
By prioritizing expansion, AMC is essentially betting in favor of its own success. If public interest in movie theaters wanes, the company could sink far further into debt. If, however, the movie theater industry sees a boom, these acquisitions will do nothing but help AMC.
Embracing Change
For years the movieplex industry has been at odds with the rising popularity of on-demand streaming. Last July, Aron made the risky decision to embrace this change, becoming something of business partners with Universal. He agreed to shorten the window of time in which AMC has the exclusive right to play Universal films; in exchange, AMC will receive a portion of Universal’s on-demand revenue.
According to Universal’s chairperson Donna Langley, “The partnership we’ve forged with AMC is driven by our collective desire to ensure a thriving future for the film distribution ecosystem and to meet consumer demand with flexibility and optionality.”
This is the first deal of its kind, and it hopefully won’t be the last. AMC is hoping to strike similar deals with other studios as well, though nothing has been set in stone yet.
What the Market Data Shows
Market data doesn’t lie, and the numbers are looking good for AMC. The company’s balance sheet shows that total assets increased by roughly $1M from Q1 to Q2 of this year. Other highlights of the Q2 report include a 19% increase in net revenue compared to the prior year quarter, as well as an 11% increase in adjusted operating income compared to the prior-year quarter.
AMC’s Q3 earnings date is Nov. 7, and investors are mixed in their predictions.
AMC in a Post-Pandemic World
To conclude our financial analysis, let’s take a look at how the recent reopening of theaters may impact AMC.
There is plenty of reason to be optimistic: when Chinese movie theaters reopened last July, people flocked to them in droves. The blockbuster Hi, Mom — regarded as the Chinese Back to the Future — grossed over $700 million at the box office only three weeks after its release. For context, the American blockbuster Black Panther grossed $500 million in the same amount of time.
Even more surprising is the success of the Chinese comedy Detective Chinatown 3, which set the world record for the largest opening weekend in history, grossing $398 million.
And while the US has not yet recovered to the extent that China has, the country is demonstrating an enthusiasm for returning to the movies. Memorial Day weekend was especially successful for theaters in the US, with over $100 million worth of tickets being sold across all domestic cinemas. This may pale in comparison to the $232 million garnered during 2019’s Memorial Day weekend, but it gives investors reason to at least be hopeful.
The movieplex industry is driven by blockbusters, and a number of these high-grossing movies are slated to be released within the coming years. Films like The Batman, Doctor Strange in the Multiverse of Madness, and Thor: Love and Thunder are expected to be huge cash cows for AMC.
AMC vs. Industry
While AMC remains the largest movieplex company in the world, it has its competitors. With Pacific Theaters and ArcLight likely being purchased by AMC in the near future, Cineworld is undoubtedly the company’s biggest threat. Cineworld is the parent company of Regal, which hasn’t been shy about its plans for a major post-Covid comeback.
In a March interview with the Washington Post, Cineworld CEO Mooky Greidinger claimed, “We have been raising a lot of money. We just raised $200 million more [via a convertible bond]. We have enough liquidity for the reopening and will be cash-flow positive very soon after.”
Greidinger’s confidence is further justified by a deal Cineworld recently struck with Warner Bros: the deal allows for a longer time period between a film’s theatrical release and its release on streaming services. The agreement begins in 2022 and will require Warner Bros. films to play in theaters for 45 days before being added to streaming services.
Cinemark’s deal with Warner Bros. is in many ways the antithesis to AMC’s deal with Universal: where AMC is attempting to embrace and profit off of streaming services, Cinemark seeks to slow their effect. Which approach will yield the best results is anyone’s guess right now.
Company performances set aside, AMC has one thing that no one else in the industry does, and that is its apes. However, experts warn that the apes won’t pump the stock forever, and the bubble can certainly burst. When this happens, AMC will have to rely completely on its own success. But the company seems to be taking the necessary steps to procure a stable future for itself.
The Pros and Cons of Buying AMC
Now that you’ve reached this point in the article, you’re probably wondering, “So should I invest in AMC or not?” We don’t intend to make the decision for you, but we will now briefly summarize the pros and cons of buying AMC.
Pros
- With the economy reopening, people are desperate to get out of the house. Many predict that there will be a huge resurgence in movieplex attendance, as evidenced by a busy Memorial Day weekend in the US, as well as China’s record-breaking numbers following the reopening of theaters. It also doesn’t hurt that several blockbusters, including The Batman and Doctor Strange in the Multiverse of Madness, are soon to be released.
- AMC has a strategic approach to expansion. While its intention to purchase ArcLight and Pacific Theaters is risky, it could be extremely beneficial for the company to have these locations if the industry begins to boom again. The company is supplementing its decision to expand with an embracing of streaming services, signing a deal with Universal that allows them some profits from streaming.
- If the apes continue their aggressive pumping of AMC, the stock price will continue to rise. However, it should be noted that the apes don’t control the stock market, and depending on them is a risky move.
Cons
- We’re still unsure of just how enthusiastic people will be to return to theaters. While Memorial Day weekend indicates public interest, one must remember that the weekend did not garner even half the profits that it did in 2019. Plus, a survey by Variety indicated that, even in a post-Covid world, 70% of people would rather watch movies at home.
- Amidst the pandemic, AMC accumulated exorbitant amounts of debt ($5.4 billion at the end of 2020), much of which it has yet to pay off.
- Because of the apes, AMC stock is thought to be severely overvalued. If you buy the stock at its current price and the bubble bursts, you could lose a lot of money.
Our Takeaway
It is hard to determine whether or not buying AMC is a good investment decision, especially considering the very unusual circumstances currently surrounding the stock. What it really comes down to, right now, is whether or not you believe that it will continue to be pumped.
$34 per share is a lot to pay for a stock whose success is mostly dependent on social media enthusiasm. (This is not said to disparage WallStreetBets). If you invest now and the bubble does indeed burst, there is great potential for loss. However, if you have faith in the community and believe that the pump has yet to reach its peak, by all means, invest in AMC.
Setting aside its association with WallStreetBets, the future of the company — and of the movieplex industry in general — is not clear, but at the very least, AMC is doing what it can to ensure its preservation. It still has a greater market cap than any of its competitors. And the company’s decision to expand showcases its self-confidence.
To quote Aron, “People enjoy the communal experience of laughing together, crying together, howling hard together… AMC is a hundred years old this year. We believe our second century will be just as bright as our first.”
