Avoid The Battle Over AMC Theatres Stock
Over the last couple months, I’ve shown you stocks to avoid…
- Avoid Airbnb After Its December 10th IPO
- Is Transportation Giant J.B. Hunt And Its 0.8% Dividend A Buy?
- Is Costco Cheap Enough To Buy After Record Earnings?
- Avoid The Battle Over GameStop Stock
- Is Facebook Cheap Enough To buy After Earning?
Stocks to consider buying…
- 3 Reasons To Buy Hershey (HSY) – When This Happens…
- Is Qualcomm A buy After Sales Rise 73%?
- Should You Buy Oracle Stock Before Earnings?
- Should You Buy Cisco Before Earnings?
- Why Intel Is Still A Buy After Its Latest Earnings…
And some of the best stocks related to the coming Internet of Things… Which you can find linked further below.
All these recommendations are to help you either avoid pain and terrible stocks. Or to help you find potentially great stocks to invest in during this pandemic.
If you do both well, it helps you earn higher than average investment returns and build wealth.
Because the fewer investment losses you have the more capital you keep. And the more capital you keep the faster you compound your money.
Today I want to tell you why to avoid buying AMC Theatres during this frenzy – because this battle and the meteoric rise of its stock is going to end badly.
AMC Entertainment Holdings (AMC) is one of the largest theatre chains in the United States.
And it’s been absolutely crushed by Covid.
The above chart from SafeGraph shows the estimated foot traffic of various industries before and after Covid.
The bottom green line – that’s theatres.
This shows that Covid hurt theatres even more than airlines and casinos. At one point after the pandemic first began, US air traffic was down 97% from its normal levels. And some casinos saw revenues drop 99%.
But, according to that info at least, theatres fared even worse.
Mainly because you’re stuck in a small room for 1.5+ hours with people who may have Covid… This potential led people to stay away.
Even after theatres began opening back up after their initial closures.
Other factors… Covid forced an almost 100% stoppage to movie production and releases for several months.
Many other movies like Marvel’s Black Widow got pushed back and still haven’t released in theatres after its initial May 2020 launch date got postponed.
Disney’s postponed a bunch of other major movies until Fall 2021… And so, have many other major movie producers.
Another thing crushing theatres now that they’re opened back up… Many companies – including Disney – are now testing the release of their new movies on their streaming platforms only – like Disney+.
Or doing a simultaneous release of the movie in theatres and via its streaming platform – like Wonder Woman 1984 back on Christmas Day 2020 – when it released in theatres and the HBO Max streaming service the same day.
Streaming was already coming and was a force for theatres to reckon with… Covid’s just accelerated that.
This all combined is crushing theatres still.
In the last 12 months AMC’s generated $2.5 billion in revenue… Its lowest level since 2011.
And on this almost decade low in revenue it lost a ton of money.
It produced negative $966 million in operating profits.
Negative $3.66 billion in net profits.
And negative $729 million in free cash flow.
These are so bad that they wiped out an entire decade worth of profitability.
In other words, in the last 12 months on an operating profit, net profit, and free cash flow basis – AMC lost more money in the last year than it made in the 10 years prior to that combined.
Things were so bad for AMC that it had to fight off rumors for months that it would go bankrupt. And these issues weren’t fully solved until a couple weeks ago when it got more funding to stay alive by issuing more debt.
This is great right? Yes, in the short term. But it also leads to an even bigger long-term issue for the company which I’ll get to in a minute.
Before that though, over the last month AMC stock has gone nuts with a battle between hedge funds shorting the stock, and traders on Reddit and Twitter buying the stock and trying to break the short sellers.
So far, the traders are winning.
At one point these traders sent AMC shares up 14,300% in a matter of days. Meaning if you bought AMC stock at $1 per share as an example it was then worth $14,300 per share.
What’s going on?
The full details will come out in the coming days, weeks, and months… But as of now, a group of Reddit members via the Wall Street Bets group on the site is buying as many shares of AMC as they can to drive up the price.
This is crushing the Wall Street hedge funds and causing them to lose billions of dollars.
Why are the day traders doing this?
As of this writing, it’s not clear but most are doing it to make a ton of money while also sticking it to the hedge funds.
I’m not going to get into the argument about which side is right or wrong here… Because frankly it doesn’t matter.
What I do want to do though is tell you to avoid this craziness. Movies and going to theatres will come back in time. Whether that’s later this year or 3 years from now. Going to the movie theatre won’t go away completely… No matter whether its Covid or streaming.
However, we don’t know when that will happen.
The large share rise did give AMC a huge lifeline though because it allowed one of its major debt holders to convert $600 million worth of debt into stock. Which lowered AMC’s debt levels by this same amount.
This was much needed because AMC has an enormous amount of debt that almost led it to bankruptcy in 2020.
As of this writing its market cap is $2.61 billion. But it has $11.34 billion worth of debt.
Meaning after subtracting debt from its market cap the equity of the company – the shares you buy on the market – are worth negative $8.73 billion.
Which means the shares are essentially worthless after you consider debt.
And this doesn’t have anything to do with the traders pushing the stock up.
Yes, a lot of people are making a lot of money on AMC right now due to the craziness surrounding its stock and the fight between traders and hedge funds.
But in these articles, I never recommend trading. Its always to buy an investment for the long term.
And AMC’s long term is extremely uncertain due to all the factors above.
For these reasons, I recommend you avoid this battle over AMC stock between the hedge funds and the traders.
Because when this mania ends, its going to end horrifically for those joining in and buying AMC late.
When the traders move onto their next target, which is already happening to a degree with Silver, GameStop, Naked Brands, Macy’s and other – AMC shares will crater.
This will hurt not only the hedge funds which is the stated goal of many of the traders… But it will also hurt the people who came in and bought AMC late.
Let’s say you saw the craziness surrounding AMC and put $10,000 into it and bought 1,111 shares for $9 per share on January 28th. You then saw shares rise all the way up to $17.06 per share on February 1st. In 3 days, you turned $10,000 into $18,954.
This is a great return of 85.9% in a few days…
What happens now though?
If you kept holding and you expected it to continue going up you’ve now been crushed and lost 58.3% of your total money – again in only a few days.
Your original $10,000, is now worth only $7,754 as of this writing… And the market is still open for 5 more hours.
This is why you need to avoid this battle.
There will still likely be ups and downs in the stock as both party’s fight.
But if you don’t know when to get out – and no one does for sure – you’ll get crushed.
Because of the massive speculation going on in its stock right now and everything else I wrote about above… Avoid AMC stock at all costs unless you buy it as a pure speculation and are prepared to lose 100% of your money.
This isn’t investing… This is 100% gambling.
If you’re looking for a solid, safe, dividend paying, stable, and enormously profitable investment to buy… Avoid the craziness surrounding AMC stock.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above