AMC (NYSE:AMC) stock can be a golden goose for competent traders. It moves fast enough to provide plenty of profit opportunities intraday. But today we are discussing its suitability for long-term investors looking to buy AMC stock now.
Spoiler alert — I am not on the “buy it” side. But I also would not condone everyone shorting this fast mover. This is one that doesn’t belong in non-expert hands.
The scoreboard isn’t obviously bearish for AMC stock, if you compare it to pre-pandemic times. Those who bought it in February of 2020 are still up more than 100% on their investment. Clearly they would take issue with my cautious tone today. However, my concern is what’s likely to happen from here, now that the pandemic sugar rush is fading. There is tremendous risk lurking for new potential investors.
AMC Stock Is Still Sick
Things were bad even before Covid-19 struck. The indices were breaking records in January of 2020, yet AMC was down 75% from its highs. Then the global lockdown effectively crippled all crowd business, which includes movie theaters. AMC’s doors remained closed for months, and its financials went into ruins.
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Business is slowly coming back to life, but revenues are still 40% below 2018 and 2019 levels. And what’s worse, it is still losing money — net income last quarter was -$337 million.
I give management all the kudos for actually surviving the test. But that’s not the same as justifying a 1,000% rally like the stock had last year.
Some businesses benefited directly from the lockdowns, like Zoom (NASDAQ:ZM). The pandemic actually boosted their revenues exponentially. The subsequent reports show that it is carrying the growth forward. Clearly they are taking advantage of this tailwind.
AMC stock is dealing with the opposite problem. The pandemic killed AMC’s traffic, and it is not even close to going back to par. Therefore, new investors must have blinders to trust in a prosperous future in the near term.
Management will likely need to drastically pivot the business to adapt to a new world. Although there are rumors, there isn’t proof of anything concrete now. And anyway, selling popcorn is not likely to live up to expectations of stock buyers now.
Show Me the Trailers
Source: Charts by TrendSpider
Last week, AMC rallied 50% in four days, which is impressive on all counts. But the $16 per share zone has history since 2019, so it is resistance. The bulls will first need to take that out soon, to break this lower-high descending trend. It would also be a tremendous help if they can hold above $13 per share meanwhile. Then the traders could start seeing some upside progress in the short term.
I am open to actively trading AMC stock, but I would not hold it for an investment. Management would need to show progress towards successful execution of their new plans. Until then, I would avoid committing new risk to it strictly on faith. The onus is on the company to show tangible results in the financials. This is the only way skeptics like me would come around.
For now, investors are likely misplacing their trust into a company that was in a perpetual decline. Covid-19 and meme stock surges saved the stock, but I doubt management will save the business without bringing about sweeping changes.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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