AMC shares gained 10% on Monday after it said moviegoers are returning, but is the cinema stock a buy or is it another short-squeeze?
On Monday, shares of AMC Entertainment (NYSE: AMC) soared to over $58 as the summer blockbuster season kicked off. Investors flocked to the stock after the cinema company said that it attracted around 2 million people, close to pre-pandemic level, to its theatres in the U.S. in the four-day period before June 27. We must ask the question, were the gains justified or is the stock caught up in yet another short-squeeze?
But, before we get into what happened with AMC this week…
…what exactly does short selling mean?
Short selling involves borrowing the shares of a given stock that a person believes is going to decrease in value in the future. That person will then sell these borrowed shares to investors who are willing to pay the stock’s current share price.
Short sellers expected AMC stock to drop due to cinemas closing. So when retail investors drove the stock price up over the last few months, many hedge funds lost money.
Why is AMC stock rising?
When AMC announced the news that more than 2 million visited its cinemas last weekend, shares skyrocketed 10%. Another half a million came for its international ticket sales. The announcement was welcomed by retail investors who have been buying the stock since it first got caught up in the meme stock craze.
CEO of AMC, Adam Aron, explained that attendance numbers reached new records since the company reopened after restrictions forced it to close for over a year. The popular movie, “F9: THE FAST SAGA”, was a big winner for AMC, generating $70 million in sales.
AMC stock, and other companies popular on Reddit’s WallStreetBets, have been rising over the past few months and over the past six months, AMC has surged 2,561%.
At the time of writing, the stock has since retreaded but is still one of the top meme stocks.
Is AMC stock a buy?
Retail investors backing the stock have had positives for AMC as a business. Analysts have pointed out that the rise in share price has helped the cinema group survive liquidation by increasing the company’s capital. As vaccines continue to be administered throughout the U.S. and physical theatres are reopening, the company should be on its way to improving its financial position.
However, AMC is still considered a risky investment due to the high volatility of the stock. The rise in AMC’s share price is heavily linked to retail investors wanting to ‘stick it’ to hedge funds so they lose their money, which is not exactly the winning investment thesis long-term investors should be looking out for.
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