Stock market

Is AMC stock on the move again?

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Entertainment group AMC Entertainment (NYSE: AMC ) has been a roller coaster ride in recent years. After a meteoric rise in 2021 due to the ‘meme stock’ craze, the company’s share price has fallen significantly. But with recent box office successes and renewed excitement among meme stocks, investors are wondering: Is AMC stock on the upswing again?

business

The entertainment industry, which has been hit hard by pandemic lockdowns and the dominance of streaming services, has shown tentative signs of recovery. Summer blockbusters and a flurry of new releases after the pandemic have brought audiences back to the big screen, boosting revenue immensely.

However, financial health remains a major concern. The company raised significant debt to stay afloat during the pandemic. Although steps have been taken to reduce it through stock offerings, the burden is still substantial. This debt limits the ability to invest in upgrades and new technologies, which can be critical to attracting customers in the long run in a competitive landscape.

Interestingly, the discounted cash flow calculation suggests that the share price could fall by as much as 56%. However, with such a fall from the peak, I can fully understand why the market would be hesitant to rely on a single metric to make a decision.

Basically, the business is still unprofitable. That’s unlikely to change anytime soon, with the share price likely to fall further, unless the events of 2021 repeat themselves.

The meme effect

The meme stock trend of 2021, where retail investors flocked to drive up share prices, played an important role in the AMC story. While this provided a much-needed financial boost, it led to high volatility and a disconnect between the stock price and the company’s fundamentals. This volatility makes it a risky investment, as traditional metrics like the price-to-sales (P/S) ratio hold little value for some.

Along with Keith Gill, one of the key players of 2021 Game Stop Mania, now back in the public eye, meme stocks have seen strong rallies in the past few days. Many are now significantly reduced, but volatility is definitely back on the menu.

Next move

As we learned in 2021, predicting the next move of these stocks is nearly impossible. There may be strong rallies ahead, but declines could be just as aggressive. Clearly the business itself is in a difficult position, but the influence of online communities to move stock prices is a different animal.

For me, I don’t want to touch AMC stock. I vividly remember the frenzy and chaos of 2021, and as many investors will do well with some luck, I don’t want to fall into the trap of chasing the rally, and potentially just seeing the fall.


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