Tuesday, June 18, 2024
HomeFinanceThe Truth Behind AMC Stock’s Fake Rally: Why It Won’t Last

The Truth Behind AMC Stock’s Fake Rally: Why It Won’t Last

So-called ‘meme stocks’ have recently made a comeback in recent months. Since some investors thought that this round would repeat what happened in 2021, it would be a very wrong assumption. Today’s market is anything but similar to its 2021 cousin, starting with interest rates four times what they used to be.

Interest rates act as a gravity lever that can pull stocks down or push them up, depending on where the Federal Reserve (the Federal Reserve) decides to place them due to the COVID-19 lockdowns and the shutdown of the US economy that forced the Federal Reserve to lower. interest rates to near zero, giving markets a “risk on” attitude and leading them to support almost any stock.

AMC90-Day AMC Performance

AMC Entertainment

$4.90

-0.88 (-15.21%)

(As of 06/07/2024 ET)

52 week range
$2.38

$62.30

Target price
$5.54

Today is not only GameStop Corp. New York Stock Exchange: GME which saw a recent spike (which was also unjustified). Actions of AMC Entertainment Holdings Inc. New York Stock Exchange: AMC They’ve also staged a recent ‘resurgence rally’ that turned out to be a mere shadow of its 2021 counterpart, but here’s why that won’t last for those looking to bet the ranch on a single roulette spin in hopes of backing out of overnight.

Why AMC Stock Struggles to Maintain High Prices in Today’s Economy

Due to these low interest rates and highly manipulative environments, meme stocks will have a hard time sustaining their brief rallies, which lasted several months throughout 2021. GameStop went further in its latest attempt to get the market’s attention.

In the company’s latest quarterly earnings report, investors will notice a net profit on GameStop’s bottom line. However, an item of interest income outside the company’s core operations may have artificially inflated this figure. Its core operations, represented by operating cash flow, showed a net outflow of $109.8 million.

Since the company didn’t actually make any money, it had to dilute shareholders by $201.9 million to fund GameStop’s ongoing operations. AMC shareholders risk suffering a similar fate: dilution.

AMC’s financials will show that operating cash flows were a net outflow of $188.3 million, leaving the company no choice but to issue approximately 70 million shares to the market, diluting shareholders by approximately 47.8%. Why would this mean good news for the share price? It is not like this.

The stock recovered only because GameStop was able to revive Keith Gill’s (aka Roaring Kitty) tweet about his large position in GameStop stock. Because AMC is also considered a meme stock, investors thought this would be a repeat of the past, not even close.

As part of the consumer discretionary sector, AMC stock is fighting what economists call stagflation, which is defined as low economic growth with high inflation. The economy is starting to fit the profile because US GDP growth rates were revised down to 1.3% during the last quarter, while inflation remained above 3%.

Why would consumers prioritize going to the movies during one of the worst economic environments in American history when they can get cheaper snacks and a broader repertoire of content through The Walt Disney Co. New York Stock Exchange: DIS Disney+ or even through Netflix Inc. NASDAQ:NFLX.

These are just some of the fundamental reasons behind AMC’s headwinds during its recent rally. It is time for investors to add the technical aspect to this failed attempt.

The Technical Barriers Preventing AMC Stock from Recovering

Technical does not always mean chart patterns and indicators; This time, for AMC, it goes even further. You could also start with the chart, particularly regarding what AMC stock did in 2021.

Going from $22 per share in early 2021 to ending up at over $726 in June, investors who caught this speculative bubble walked away with ungodly amounts of money and a misperception of the realities of the stock market.

Fast forward to today. AMC stock rose from $3 per share in May to $13.3 per share in a couple of weeks. Far from lasting six months like in 2021, this rally only lasted about three days, showing that management only took the opportunity to issue expensive shares and buy themselves another year of compensation for their “efforts.”

Overall Market Ranking™
1.92 out of 5

Analyst Rating
strong sale

Up/down
12.9% increase

short interest
Bearish

Dividend strength
N/A

Sustainability
-2.27

News Sentiment
0.81mentions of AMC Entertainment in the last 14 days

Use of insider information
N/A

Projected earnings growth
Growing

See all details

Citigroup analysts see AMC stock valued at just $3.2 per share, forecasting a net drop of 41.2% from where the stock has recovered so far today. More than that, earnings per share (EPS) projections for the next 12 months expect another year of negative earnings, making it more likely that the stock will remain at lower prices.

Throughout 2024, AMC stock’s short interest has increased each consecutive month, showing investors that there is no end to the bearish appetite to keep this stock where it theoretically should be. As if that weren’t enough, AMC stock reports a net institutional outflow of $359.2 million over the last year; Not even pensions want to see this value in their shares.

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