With its share price falling like an avalanche over the past month, now looks like a good time for shareholders of AMC (NYSE:AMC) to sell the once high-flying meme stock.
Since Nov. 15, the stock of the world’s largest movie theater chain operator has plummeted around 44% to now trade at $23.50 per share. At current levels, AMC stock is about 68% below its 52-week high of $72.62 and the decline looks to be accelerating. On Dec. 13, shares of the Leawood, Kansas-based company were down 15% during the trading session.
After defying expectations (and logic) for most of this year, AMC stock looks finally to be coming back down to Earth after being propped up as a meme play by hordes of retail traders since late January, providing some vindication to Wall Street analysts who have a median price target on the stock of just $6.
Loss of Short Sellers
AMC, which was founded in 1920 and today operates nearly 11,000 movie theater screens around the world, had seen its stock elevated to unreasonable heights based on the fact that retail traders executed a short squeeze on it. And, to be fair, at its current price, the stock is still up almost 1,000% on the year having started trading on Jan. 4 at just $2.20. However, now the vast majority of professional traders on Wall Street who held short positions in the stock (betting that it will go down) have sold their shares and are nowhere to be found, making it much more difficult and unlikely that a short squeeze can again be executed on AMC stock.
According to the latest data, only 16.2% of AMC shares are currently sold short, a four-month low. The Reddit message boards are full of comments and conspiracy theories that the latest short interest data is inaccurate or a blatant lie, claiming that so called “naked shorts” are deliberately understating the number of traders betting against AMC.
However, AMC’s own chief executive officer (CEO), Adam Aron, took to social media to debunk these wild theories, saying via Twitter (NYSE:TWTR): “As to the existence of so-called fake or synthetic shares, or the naked short selling of AMC shares, we are unaware of any information validating these theories.”
Mixed Results at the Movies
The other issue weighing on AMC stock and its long-term outlook is the uncertainty that hangs over the future of movie theater chains. The global pandemic led to the ascension of streaming content from the comfort of home and has clearly changed the way in which people consume entertainment. Will that trend reverse itself as Covid-19 restrictions are lifted? The jury is still out with many film distribution companies experimenting with hybrid release models where movies are made available in theaters such as those run by AMC and on streaming services at the same time. So far, this release strategy has been mixed, as have box office receipts since the summer.
Box office earnings during the weekend of Dec. 11 and 12 totaled $42.7 million, which was 64% below the box office tally from the same weekend in 2019 before the pandemic. And major film releases, such as the remake of West Side Story, continue to perform below expectations despite positive reviews and strong word of mouth.
Ultimately, it remains to be seen if AMC can ever recover from the ravages of the pandemic when the majority of its theaters were forced to close and the company lost $4.6 billion. AMC is doing its best to adapt to the new reality through measures such as enhancing its app and making its popcorn available for sale in grocery stores. But will it be enough?
Sell AMC Stock Before it’s too Late
If the cratering share price isn’t enough to convince investors to sell AMC stock, consider also that company executives have been unloading their own holdings in the company in recent weeks. AMC’s chief financial officer (CFO) has sold all of his vested shares in the company he works for (not a good sign). Even CEO Adam Aron has been selling his stock throughout the autumn as the share price sank lower and lower.
Shareholders who are exercising their diamond hands and holding on would be well advised to follow AMC executives and sell their own stock of AMC before there are no gains left to be realized.
On the date of publication, Joel Baglole 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.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
