With its fourth-quarter earnings release, AMC Entertainment (AMC) - Get Free Report indicated that the effects of COVID may finally be behind us. But even though the cinema chain beat market expectations and reported its best quarter since the pandemic began, its stock still dropped post-earnings.
AMC stock is highly volatile due to its meme-stock standing and often-uncorrelated fundamentals. But let's look at three reasons to stay bullish on AMC.
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1. Fundamentals Are in the Best Shape Since the Pandemic
To be clear, AMC is not yet operating at pre-pandemic levels. But the numbers show that it's probably only a matter of time.
Probably the best news of the quarter was that the company reached positive EBITDA and operating cash flow. AMC's balance sheet was heavily affected by the pandemic. But it now has $1.8 billion in liquidity. This means AMC doesn't have to play defense anymore.
The 620% year-over-year top-line increase was not a surprise. The nearly 60 million moviegoers represented about 64% of pre-pandemic levels. This ratio has progressively improved during the last few quarters.
The rebound was even more evident in food and beverage. Revenues reached 87% of pre-pandemic levels. Yet the average revenue per patron of $6.38 is far better than $4.74 in the fourth quarter (Q4) of 2019.
2. Retail Owns the Float
During the Q4 earnings call, CEO Adam Aron sent a message to shareholders that retail investors currently own over 90% of AMC's float, excluding index funds, of the official 516 million shares issued.
A company whose ownership is widely distributed to the general public, as is the case with AMC, can benefit in a few ways. For example, AMC can implement or change company policy without necessarily being aligned first with a handful of key shareholders.
AMC's ownership layout has already allowed CEO Adam Aron to put to a vote the issuance of 25 million new shares, which in this case was vetoed by a majority of shareholders reticent about a possible price decline.
The CEO has great respect for AMC shareholders and has been making most of his equity issuance decisions in a transparent fashion, always acting in line with what is anticipated by the stockholders.
3. Maximum Utilization And On Short Sellers Under Pressure
To squeeze short sellers is one of the primary reasons individual investors buy and hold AMC stock. However, in recent months the market has not been on the side of the "Apes," as AMC shareholders are sometimes called. But some stats show that another short squeeze may be in the works.
As of February 14, short interest in AMC was at 20.3, according to data provided by Morningstar. This represents a 7% increase in short interest compared to January 13, showing that short sellers continue to bet against AMC.
Another interesting stat is the utilization rate. AMC reached 100% utilization a few days ago, which implies that all of its available shares have been borrowed, and theoretically, there are none left to be shorted.
A high utilization rate means that short sellers could face an eventual buy-in, should investors decide to recall their shares. That could cause a short squeeze.
However, many AMC stockholders are skeptical of the dynamics of the stock market and possible market manipulation by short sellers and marker makers and urge protective measures to be taken by the SEC.
The Department of Justice is investigating more than 30 short-selling firms for alleged trading irregularities. Although the investigations are still ongoing, positive developments could give AMC stock a boost.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)