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AMC Stock: What The Smart Money Keeps Missing

Recently, Macquarie’s analyst downgraded AMC stock to underperform based on fundamentals. But is Wall Street looking at future share price performance through the right lenses?

Wall Street analysts’ bearishness on AMC stock  (AMC) - Get AMC Entertainment Holdings, Inc. Class A Report runs counter to the so called “meme” stock frenzy. Shares of the movie theater operator recently rallied from early August, rising 21%. But then the stock dropped 6% in only two days, following the latest sell-side downgrade.

Figure 1: One of AMC's movie theaters.

Figure 1: One of AMC's movie theaters.

Today, we argue that Wall Street’s bearishness misses the point on what could drive AMC stock’s performance going forward.

(Read more from Wall Street Memes: AMC Stock: This TV Personality Is A Meme Frenzy Advocate)

The latest bear take

Based on the average of five Wall Street analysts who offered twelve-month price targets on AMC stock in the last three months, share price should be about $8, with the highest projection set at $16 and the lowest, at $1. Currently, AMC shares are valued much higher, at around $44.

The most recent Wall Street take came from Macquarie’s Chad Beynon. He downgraded the stock from neutral to sell, with a price target of $6. The analyst seems to believe that the movie lineup for the rest of the year is looking weak, and states that box office revenues for the next two years should remain below pre-pandemic levels.

He also argues that financial leverage is still a problem. While AMC managed to raise $2 billion in liquidity and refinance some debt, the bottom line remains under pressure.

Missing the point

Arguably, AMC analysts have been doing their jobs: to analyze the company and its stock from a business fundamentals perspective. But how much does their work really matter at this point, in the face of a stock that clearly trades on different factors altogether?

Ideally, an opinion on AMC should take into consideration, and not underestimate, retail investors’ ability to support very high price levels on AMC stock for such a long period of time. Fundamentals without consideration for the impact of meme frenzy tells an incomplete story, in our view.

With yet another downgrade on the stock, Wall Street still seems to ignore that AMC stock is one of the most popular on the main discussion boards, and that the ape community remains highly committed to waiting for the next short squeeze. AMC is a case of momentum trading in which apes seem reluctant to sell, even near all-time highs.

In fact, as short interest on AMC continues to grow, fueled in part by Wall Street’s bearishness, the case for holding a long position in anticipation of a short squeeze gains strength.

(Read more from Wall Street Memes: 3 Meme Stocks With Short Squeeze Potential In September)

(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)