AMC Entertainment (AMC) is the largest movie theater company in the world.
Against all the odds, at a time when movie theaters were facing unprecedented challenges to the industry with lockdowns and widespread movie theater closures, AMC saw its share price soar in 2021.
Why did this happen? To put it bluntly, AMC was one of the hottest ‘meme stocks’ of 2021. Whilst many of us heard about the GameStop meme stock craze, the same affable gang of chaos creators.
Reddit’s WallStreetBets forum (see also our article on TENDIES), that were responsible for it had also backed another unlikely horse: AMC, which hedge funds had bet heavily against.
So, could this stock actually be more than just a meme? The answer is a little complicated, so join us to find out.
How High Did AMC Stock Go In 2021?
Retail investors, driven primarily by Reddit, were able to drive AMC up to an all-time high of $72 per share in late May 2021.
That’s up over 3000%, with that success entirely driven by an online movement that had momentum and a bunch of willing investors.
The number of retail investors who own AMC stock increased by a million between the start of 2021 and the start of 2022, clocking in at 4 million today.
The trading volume reached heights of 700m-900m a day as panicked investors, who had missed the beginning of the trend earlier in the year, engaged FOMO (fear of missing out) mode.
Many assumed that this was only a temporary blip (see also ‘What Is A Pullback In Stocks?‘), and that the share price would self-correct downwards over time.
But has it? Hedge funds lost billions of dollars betting against AMC last year, and many continue to short the stock even now with a view to recuperating some losses. But is the stock about to crash?
What Caused The 2021 AMC Rally?
You might wonder why anyone would want to invest cold, hard cash in a so-called ‘meme stock’.
After all, a meme stock is called a meme stock for a reason- it’s an investment in a failing company, which is the opposite of what you’d normally do. Well, meme stock advocates do have a couple of reasons for their madness.
Firstly, meme stock advocates are actively engaged in a campaign to deprive the big investment companies of as much power and money as possible. To that end, meme stock investors aim to create a ‘short squeeze’.
This happens when a stock’s price rises so sharply that short-selling investors (people who are gambling on a drop in price) need to sell their shares to cut their losses.
Some meme stock investors also try out options trading or day trading for the sheer thrill of it, with greater risks but also greater rewards.
What Is The State Of AMC Stock Now?
At the time of writing, AMC stock is trading at roughly $12 a share. That’s down from $28 at the start of the year, and a decrease of some $60 from its all-time high of $72 in May 2021.
Over the same time frame, AMC has lost getting on for 75% of its market value, principally due to meme stock investors getting skittish and cutting their losses.
Usually, that would be a huge cause for concern. Yet, the stock remains stubborn, with many investors holding on in the hope of another surge, perhaps even to surpass the one witnessed in 2021.
You might think this is nuts, but there is a method in the madness. Although the meme hysteria has faded, there’s still a pretty solid case for expecting the share price to rally again this year.
Nevertheless, you’re not going to make millions, and we’ll look at why next.
How High Will AMC Stock Go?
The truth is that nobody knows how high AMC stock will go. A quick google search will reveal some in the community talking about AMC stock hitting heights of up to $100,000, but that seems unlikely.
With 502 million shares, a stock price of $100,000 would imply a company valuation of over $50 trillion!
Considering that the world’s two largest companies, Apple and Microsoft (see also our article on MANTA stocks), are currently worth some 25 times less than that, at about 2 trillion each, you’d have to say $100,000 a share is definitely out of the question.
There are those much more sensible people in the community, who say that AMC stock hitting heights of $1000 a share is possible.
They say that because of the number of shares loaned that will need to be purchased back, the share price could shoot up to over $1000 per share or perhaps even more.
Many in the industry are expecting a short squeeze that could lead to temporarily higher prices, as investors looking to cut their losses create a buying frenzy that drives up the price.
This snowball effect has been observed in the investment world before, as seen in the case of Volkswagen shares back in 2008, when a short squeeze drove the share price up to nearly €1000- which was well over a thousand dollars at that time.
Nevertheless, this price increase was temporary, and prices soon came tumbling back down as quickly as they had gone up.
Buying AMC in the hopes of a short squeeze is a gamble, and holding the stock in the long run probably isn’t all that profitable. Many people struggle to see AMC even reaching $100 per share.
A Silver Lining
All that said, there is a silver lining, one that very probably explains why people are hanging on to their stock. Even without a short squeeze, there’s a good case for AMC share prices to jump up again this year.
The reason, in a nutshell, is Covid-19, or rather a lack thereof. With the end of lockdowns and enforced closures, movie theaters are back in business- and with that so are AMC.T
he company, boosted by an urge amongst the population to get out and about again and big name releases like Top Gun: Maverick, has seen revenues explode to $785.7 million in the first quarter of this year.
That’s well up from the $148.3 million reported for the same period last year.
It’s worth remembering, though, that this is just a recovery. Even sales doubling in 2022 over 2021 would still see total revenues well down in comparison with 2019, when AMC’s revenue was $5.5bn dollars.
AMC first burst onto the scene as a ‘meme stock’ in May 2021. Although it has since fallen from share price highs of over seventy dollars, the stock remains stubborn.
There could yet be another, possibly significant increase in share price, but no one knows when that will happen- or how high the share price will go when it does.
If you enjoyed this article, you might enjoy our post on ‘What Is PR In Stocks?‘.
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