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AMC Stock Soars After Its Russell 1000 Promotion

AMC stock reacted well to its addition to the Russell 1000, rising sharply amid investor excitement.

AMC Entertainment's  (AMC) - Get AMC Entertainment Holdings Inc. Class A Report stock had a positive day shortly after joining the index of the top publicly traded companies in the U.S. Now in the Russell 1000, AMC's stock is at a new high, and investor demand may favor it.

Let's take a deeper look at the positive reaction investors have had to AMC joining the Russell 1000.

Figure 1: AMC Stock Soars After Its Russell 1000 Promotion

Figure 1: AMC Stock Soars After Its Russell 1000 Promotion

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AMC Narrowly Managed to Join Russell 1000

It was close, but AMC managed to join the Russell 1000 by a hair's breadth. On the May 6 cutoff date, the movie theater chain's market cap was just over $7.5 billion. The main criterion for promotion from the Russell 2000 to the Russell 1000 is a market cap above $7.3 billion.

Days after the cutoff date, AMC's market cap fell below $7 billion. It did reach above $7 billion again in late May and, more recently, in late June.

In any case, AMC's market cap appreciation is quite significant versus the same period last year. At the 2021 cutoff, AMC's market cap was $3.8 billion, nearly half of what it is now.

AMC Shares Spike With Its Index Promotion

In theory, when a company is promoted or added to an index, it benefits from being lumped in with other, more robust companies. By joining the Russell 1000, AMC will be part of an index where 92% of the entire market capitalization of all U.S.-listed stocks is concentrated. As a result, investor demand may rise, as well as trading volume, making the stock more liquid and desirable.

And that's exactly what happened to AMC during the trading session on June 27. AMC shares were among the most actively traded stocks. The spike in trading volume also caused an increase in the share price. Shares rose 13% by the end of the day.

Just as AMC joined the Russell 1000, gold and silver mining company Hycroft Mining  (HYMC) - Get Hycroft Mining Holding Corporation Report, partially acquired by AMC in March, joined the Russell 3000. With a market cap of $241 million today, the company joins the group of the top 3000 companies traded on the U.S. exchange. AMC owns about a 22% stake in Hycroft Mining.

What About the Long Term?

Today, AMC trades 76% lower than its historical peak in June 2021, when it reached over $60 per share. Still, Wall Street experts consider AMC stock to be overrated, although the fundamentals of the movie theater chain are at their best since the pandemic.

In its latest earnings release, AMC reported its best first-quarter result in two years. Revenues increased fivefold, its positive EBITDA (earnings before interest, taxes, depreciation, and amortization) grew about 80% compared to last year.

Even though it is close to returning to pre-pandemic levels, AMC CEO Adam Aron said that the company needs new sources of growth to diversify beyond its core business and generate long-term value for investors.

AMC should make new acquisitions such as Hycroft Mining in the not-too-distant future, and this should be the key differentiator for AMC against its industry peers.

However, keep in mind that, in a possible recession, Russell 1000 growth and speculative stocks will likely get hit with rising interest rates. As a part of that basket, AMC could be influenced as well.

(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)