Is it time to buy AMC?
Theaters and other beleaguered industries like restaurants and concert venues are anticipating the return of crowds over the next few months with the massive vaccination effort ongoing. AMC is the largest movie theater chain in the world and their stock is up 1100% this year.
AMC is part of a Wall Street phenomenon that began this year pitting larger, institutional hedge funds against groups of online investors. Companies like GameStop and AMC have been shorted by hedge funds and other big investors, a bet that stock in the company will fall.
Smaller investors have instigated a “short squeeze” against those funds, pouring money into shares of those companies until larger funds are forced to sell off shares to cover money borrowed to buy them.
Shares of GameStop, one of these so-called meme stock, are also up more than 1,000% this year and 5,000% for the last 12 month. AMC went from $1.91 to $36.72 in less than a year and GameStop went from $3.77 to $483 in less than a year.
These 2 names are certainly proof that a company’s stock is, or at least can be very disconnected from the company itself and its fundamentals. Neither one of them has the valuation to back up these stock prices. However, that doesn’t mean that either one of these or both couldn’t go even higher. While GameStop has retrieved to $240, AMC has all the momentum and the stock price has doubled in a week. The possibility of a short squeeze and a run up into triple digits is there.
Can you make money by following these forums and investing in stocks like GME and AMC? Yes, that is a possibility, but you also stand to get burned quite badly if things go sideways. The rallies and subsequent price drops that come with these stocks are not for the faint-hearted. More importantly, they are not tied to company performance. I don’t think either one of these companies are a good investment.
Trading is a different approach and can be profitable if you are an experienced trader. If you are not, then there is really no difference to a roulette table.
(Full Disclosure: I currently own AMC Options and Stock.)
Falk Hampel
