AMC Entertainment (NYSE:AMC) became the new king of meme stocks with a gain of 3000% between January and June this year. Few stocks have soared this way. The AMC share price has made a return of about 2,101% year-to-date. Will it continue to climb higher, or has it reached its peak? Let’s look deeper.
The AMC share price before the meme craze
AMC Entertainment was founded in 1920 and has grown to be a leader among theatre operators worldwide. The company screens in about 15 countries and operates 593 domestic as well as 335 international theatres.
AMC has struggled in its business in recent times. Due to the disruptions caused by the pandemic, the AMC share price dropped to a miserable $1.91 on 5th January 2021. But all this turned around when the meme craze started.
The AMC share price soared from around $2 to nearly $20 per share within a few days. The retail traders’ inspired spike has seemingly turned the fortune of the company around. But whether it will be sustained is yet to be seen.
Will AMC Share Price Continue to Climb Higher?
Market sentiment is not always based on market fundamentals. As a result, the stock market eventually corrects, which takes the price of a stock down to a lower valuation every so often. This being said, do the fundamentals support the surge of the AMC share price?
In short, no. Not even close. This meme stock appears to be entirely driven by retail traders’ emotion in the “meme moment”. And I don’t think this is sustainable over the long term. After all, if the company fails to meet the exceptionally high level of expectations, the share price will likely take a downturn. But the recent results from this business are encouraging.
AMC Entertainment financial results
According to its latest results, revenues are on the rise. AMC beat market expectations in the last two quarters. In Q1 2021, the earnings-per-share came in slightly ahead of expectations. But in the second quarter, it was ahead by 25.6%!
There is no denying that this is an impressive performance. And the management team are also taking advantage of the inflated share price from the “Meme craze” to raise equity of $1.246 billion.
Risks that Lie Ahead
Notwithstanding the surge in share price and the impressive improvements in revenue, AMC is still heavily in debt. The relief for investors may lie in the fact that the debt is for the long term. Of the nearly $5bn in loans, only $418m is due between 2021 and 2024.
Aside from that, the company is in a highly competitive market. These competitors include Cineplex Entertainment, Cinemark Holdings, Marcus Corporation, among others. All these can affect the revenue the AMC Entertainment.
Wrapping Up
AMC share price was up 20.34% at the close of the market on Tuesday this week. But the question that remains is whether the stock will continue to rise if the meme craze fades out. However, suppose the company makes good with the new money in its hand. In that case, AMC might be able to perform an impressive turnaround. Personally, I’m keeping this stock on my watchlist.
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Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.
