11 Reasons to Invest in AMC
Disclaimer: This post does not constitute financial advice. Do your own due diligence before making an investment.
AMC was hard-struck by Covid-19, but thanks to the rally in early June, the company was able to raise funds and (somewhat) stabilize the business.
There’s a long way to go before they return to profitability, but for now the massive bleeding appears to have stopped.
Here are some reasons you might want to invest in the company.
1. Humans are learning how to live with Covid-19. We’ve adapted with masks, vaccines, and social distancing. Eventually we might even have an oral antiviral (aka the magic covid pill) which could reduce Covid-19 to a mere annoyance. If this happens then theaters could be packed again.
2. Cathie Wood (CEO of Ark Invest) believes there is a pent-up demand for services. When Covid first hit, everyone bought work-from-home gear. They also renovated their houses, built decks, dug pools, etc. Now people want out of the house. They want to go back to restaurants. Walk around museums. They want to see a movie at the theatre.
3. Roughly 18% of the float is still short, which makes possible a future short squeeze. This squeeze doesn’t have to be triggered by good news coming out of AMC. It could be good news coming from a biotech company. If we beat Covid-19, then people can return safely to theaters. More people, more revenue.
4. Many small cap stocks have been trading flat, or down since February. Now it seems that both IWM and XBI are recovering. This is causing many oversold small caps to jump higher. When heavily shorted stocks start to squeeze, it can have a ripple effect onto other heavily shorted stocks. (Like AMC.)
5. AMC has the backing of thousands of users (Apes) that are refusing to sell their shares no matter what. Many of these users are also purchasing new shares on a frequent basis. This creates a bottom for the stock price. In the last two months, even in the depths of the summer small cap massacre, Wall Street has been unable to tank the stock price under $31.
6. AMC currently has about 2 billion in liquidity (cash and lines of credit.) This is a tremendous war chest, which will allow them to weather the Covid-19 slowdown for a long time. For reference, this is more cash than the entire company was worth back in Fall 2019. So, you can’t look at the 5-year chart and say, “This was once $2, it can easily go there again.” That would be ridiculous. Their financial situation is completely different now.
7. Almost all of their 925+ theaters have been re-opened. The narrative that AMC is screwed forever due to Covid is officially toast.
8. Q2 2021 revenue (444M) was almost three times the Q1 2021 revenue (148M).
9. If you look at other countries that have fully re-opened, almost everything is back to normal. Night clubs, restaurants, movie theaters, etc. People have short memories when it comes to danger. They see others doing things that seems safe, so they do them as well.
10. AMC’s current market cap is 30B. This gives them considerable leverage when it comes to raising funds. If they start wielding this clout to make some future-friendly acquisitions, then this could turn into much more than a movie theater story.
11. Institutional ownership is trending upwards. Just last quarter BlackRock increased their position by more than 10%. They currently hold 30,482,159 shares. When you see institutions backing up the truck to buy, it’s usually a pretty good sign.
The basic economics of supply and demand will always dictate price.
If the Apes keep buying, keep holding, then eventually Wall Street will surrender. Large banks don’t trade on emotion. They trade on expected value, and opportunity cost. If the cost of shorting AMC becomes too expensive, or Wall Street starts to see a turnaround story, they will switch sides and go long.
It will become just a slow grind upwards, which is how the chart of any good company should look in the absence of stock manipulation.
Oh, they’ll still try to shake you out, but if the AMC story turns to one of growth and profitability, the days of dropping 15% for no reason will be over. Then you’ll start to see people complaining about a 1-2% “correction.”
Holding good companies forever is the best way to beat Wall Street. There’s literally nothing they can do to stop you.
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