The Reddit-induced short-squeeze is still on a roll, and the era of these meme stocks seems to have continued. With the likes of AMC (NYSE: AMC), GameStop (NYSE: GME), Sundial (of which you can read more here), and Blackberry all seeing their shares increase in value again, many investors who stayed away back in February, might be intrigued to buy into the current hype. Thus, we thought we would do the leg work for you. Which of these stocks is the better investment: GameStop or AMC Entertainment?
This article was originally written by MyWallSt. Read more market-beating insights from the MyWallSt team here.
Bull and bear case: GME
GameStop is the poster child of the short-squeeze. For a company that epitomized the early 00s teen nostalgia, many traders were willing to bet on the fact that this company could remake itself for this new digital era.
And this is exactly what the company is now trying to do. With the rise in its stock price, it sold more shares and used the funds raised to pay off its $216 million debt, which was supposed to mature in 2023. With this load off its shoulders, it can get around to the business of upgrading.
For its most recent earnings report, GME posted a quarterly increase of 175% for its global e-commerce sales and 191% for Fiscal 2020. It even saw a small 6.5% bump in comparable store sales for Q4. The company has also put in place new measures to drive costs down, which has resulted in an 18% reduction year-over-year (YoY) of selling, general, and administrative expenses coming in at $419.1 million for the quarter and a reduction of 21.2% YoY for the fiscal year.
However, GameStop is not out of the woods yet. Whilst Q4 did well, the company saw an overall reduction in net sales for the quarter, down 3.1% YoY, whilst it missed profit forecasts by 6%. Additionally, 21% of its shares are shorted, meaning that there are more than a few hedge funds and investors who are still betting on the companies downturn, particularly as the stock itself remains hugely overpriced.
Bull and bear case: AMC
Whilst GameStop might be the posterchild of the meme stocks, AMC is the one company that has benefitted hugely from this recent rise in Reddit users’ interest. In the last month, its share price has skyrocketed 160%. But, by the time the short-squeeze started, AMC was close to bankruptcy. So has its fortune now changed?
Before the pandemic hit, AMC was struggling, alongside most other cinemas who were feeling the effects of the rise in streaming. But in 2019, the entertainment company made moves to diversify its revenue stream to benefit from the digital at-home trend. Indeed, in its most recent Q1 earnings report, AMC subscription revenue was up by 14% year-over-year. Unfortunately, its ad revenue was down by 7% for the same quarter, which is attributed to coronavirus-related delays in programming schedules.
Unfortunately, in 2020, AMC experienced the most challenging 12 month period in its business history and this is not likely to improve this year. Entertainment companies such as AT&T, and Disney have begun the trend of releasing new films simultaneously on their own streaming platforms, HBO max and Disney+, as well as in theatres. If more production studios keep doing this, AMC will lose its tenuous revenue from people looking to stream the films that have been released into cinemas.
Although AMC has managed to pay off some of its outstanding debts, its business model means that even once coronavirus is gone, AMC will have to contend with its $473 million in deferred rent obligations as well as its growing negative cash flow, which came in at $328 million for Q1.
So, which one is a watch right now?
Neither GameStop, not AMC is a good option to invest in right now. However, if you are tempted by the risk, the best bet out of these two stocks is GameStop.
Its business has recovered better and its share price has seen a longer amount of momentum in this recent upturn. In addition, GameStop has posted better earnings and is most likely to recover faster once the pandemic is over. Unfortunately, AMC might have been too close to bankruptcy before the short-squeeze started to have fully benefited from the Reddit-induced stock recovery.
MyWallSt gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team posts daily insights, subscriber-only podcasts, and the headlines that move the market. Start your free trial now!