Often hostile risk assets in 2022 have flown higher this past week and provided some much needed relief. But if you think you’re late to the show already, AMC Entertainment’s (NYSE:AMC) stock still looks affordable for buyers heading into a less gloomy June.
Some on Wall Street might tease that if the broader market were to have an aviator callsign, it would be “Dead Cat” after the Nasdaq jumped almost 7% for the prior five-day period after hitting a new corrective, bear market low on May 20. So what does that make AMC stock’s recent outsized, near-three-fold outperformance spike?
It depends on who you ask. With the broader market featuring a follow-through day event critical to emerging bull markets today, let’s explore AMC stock, and determine why the evidence supports a purchase.
Blockbuster Action for AMC Stock
Over the holiday weekend the much anticipated sequel Top Gun: Maverick gunned its way to a record-breaking North American box office with estimated sales of around $160 million. Maverick’s ticket sales broke a 15-year record held by Disney’s (NYSE:DIS) Pirates of the Caribbean: At World’s End and also proved Tom Cruise’s staying power with the sequel becoming the star’s first-ever $100 million plus opening.
With pre-season big budget success from The Batman, a terrific start to summer movie fare with Marvel’s Doctor Strange in the Multiverse of Madness and now Maverick, bad actors weighing on AMC stock like inflation, stretched consumer wallets Covid-19, labor shortages, among other headwinds may have finally met their match. That’s especially true with other can’t miss sequels in the summer pipeline: Thor: Love and Thunder, Lightyear and Jurassic World: Dominion.
AMC Still Has a Fair Share of Doubters
Source: Charts by TradingView
However, not everyone is upbeat on this weekend’s box office performance for AMC stock. Not yet at least. Speaking to Yahoo Finance on Monday, research outfit Macquarie maintained its bearish $6 below-the-market price target in AMC shares.
The firm’s Chad Beynon backed his forecast based on an ailing pre-Covid sales decline of 35% for AMC stock, cash burn, the aforementioned bad macro actors, streaming competition and wariness over mid-tier movies, which aren’t box office gold like big budget sequels.
The analyst was open to reconsidering his bearish stance if other big production flicks deliver this summer and some mid-tier offerings can also overdeliver. And if we’re to trust the market’s ability as a prescient pricing mechanism, AMC stock may be forcing Macquarie to do just that shortly.
This past week’s outsized rally sets the stage for an emerging bull market after breaking out of a near one-year long downtrend. As a second attempt breakout following March’s wildly volatile failure, coupled with a bullish weekly stochastics setup and a massive correction of around 85% in AMC over the past year, there are reasons for bullish contrarian buyers to be positive.
A Matinee Style Purchase in AMC Stock
A sequel in AMC stock similar to 2021’s dazzling short squeeze spectacle simply isn’t going to happen. The fanboy base on Reddit’s r/WallStreetBets responsible for that show simply isn’t there like it was before. But some investors still see AMC as a turnaround candidate that’s capable of being more than just a meme stock.
In fact, famed macro investor Ray Dalio, whose Bridgewater Associates is the world’s largest hedge fund, took a stake in AMC shares during the first quarter according to recent Securities and Exchange Commission filings.
Today, the firm’s net exposure of around $667,000 in AMC is essentially a rounding error. Importantly though, it does suggest AMC could be a stock that’s more than simply a meme. To be sure, it will be interesting to see if the fund manager builds up a larger stake in the theater chain.
For investors willing to give AMC stock a chance without breaking the bank or cracking the recently broken trendline, I’d suggest a Jan $15/$22 bull call spread as the right admission price.
On the date of publication, Chris Tyler 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.