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Why AMC Entertainment Stock Jumped 27% Last Month | The Motley Fool

What happened

Shares of AMC Entertainment (NYSE:AMC) gained 27% last month, according to data from S&P Global Market Intelligence.

The movie theater operator stock rose as it reopened theaters, posted its fourth-quarter earnings report, and as bullish traders on Reddit plowed into the stock once again. It was another volatile month as the chart below shows, but the stock’s gains in the first half of March were enough for it to finish the month up 27%.

AMC data by YCharts

So what

AMC shares have skyrocketed this year as traders on Reddit’s WallStreetBets board have pumped up the stock, and it has traded in tandem with GameStop, another favorite of the Reddit crowd. Much of its gains last month came as GameStop shares soared; the video game retailer finished March up 86%.

The entrance to an AMC multiplex

Image source: AMC Entertainment.

AMC did have some good news to share last month, saying it had reopened nearly all of its domestic theaters as of March 5 and would soon reopen in Los Angeles and New York, its two biggest markets. That announcement came during the company’s fourth-quarter earnings report on March 10. As expected, the numbers were atrocious, with revenue falling 88% to $162.5 million and a posted net loss of nearly $1 billion on a generally accepted accounting principles (GAAP) basis. Based on free cash flow, it lost $375.7 million.

However, the stock rose following the report as investors looked ahead to theaters reopening and hoped that pent-up demand would drive the company’s recovery. 

Later in the month, shares pulled back as Disney announced that it would release Black Widow and Cruella simultaneously in theaters and on Disney+ this summer, showing that the old model of a 75-day exclusivity window for movie theaters may be dead even after the pandemic is over.

Now what

AMC’s share price is being supported mostly by traders who seem convinced that the stock can run significantly higher, even though its fundamentals are thoroughly terrible. The company has $5.7 billion in debt, on which it’s paying as much as a 15% interest rate, and the company has diluted shareholders by more than 300% since the pandemic started, meaning shareholders have a much smaller claim on earnings now. 

Even the pent-up demand argument seems in question after the Disney announcement. In the near future, the entertainment stock should continue to move according to the whims of day traders, but the business’ poor fundamentals should eventually catch up with it.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.



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