Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money

71% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Will AMC be able to roll out the red carpet for its earnings report?

Thanks to its meme stock status and popularity among the Reddit crowd, the AMC [AMC] share price has skyrocketed and is up 1,480.66% year to date from $2.12 at the start of the year to $33.51 at the close on 5 August.

However, the AMC share price has tumbled in recent months. Since peaking at an all-time high of $72.62 on 2 June, the bottom seems to have fallen out. It’s dropped 35.51% in the last month and 12.12% in the last week.


AMC's YTD share price rise


Unsustainable stock?

The fall from the all-time high came after Iceberg Research announcing a short position on the stock on the basis that the AMC share price’s inflation was unsustainable. ‘There is a price for everything and we believe the pump has exceeded its average life,’ tweeted the short seller.

The cinema industry has taken a battering during the coronavirus pandemic. While there should be a near-term box-office recovery as some upcoming big tentpole releases attract people into theatres, there are concerns about AMC’s balance sheet.

In a June note to clients reported by Yahoo Finance, Macquarie Capital analyst Chad Beynon stressed that cinemas reopening was key if AMC is going to address its deferred rent that the company is contractually obliged to pay within the next two years. Beynon has a ‘neutral’ rating and target for the AMC share price of $6, suggesting an 82% downside from its 5 August closing price and suggesting that investing in AMC at the current price is loaded with risks.

Beynon explained on CNBC’s Market Alert that Macquarie’s target for the AMC share price is based on analysis of its free cash flow and having covered the company for over a decade. Cinema stocks typically trade at 10 to 15 times free cash flow, he added, and AMC is overvalued.

Will the AMC share price continue to move lower after the Q2 2021 earnings report on 9 August?


Optimistic expectations

No guidance from AMC is available but revenue is expected to be between $292.60m and $376.80m, according to a consensus estimate by Zacks. The middle at $341.30m would represent a 1,705.82% increase in revenue of $18.90m reported in Q2 2020.

Earnings per share are expected to be between a loss of $1.10 and a loss of $0.79. The consensus of a loss of $0.91 would be a huge improvement on the loss of $5.44 reported in the year-ago quarter.


AMC's expected Q2 revenue - a 1,705.82% YoY rise


Investors are likely to pay close attention to any update AMC gives to its balance sheet. The company has been aggressively raising capital in recent months, most recently bringing in $587.4m through the sale of 11.55 million shares at a price of $50.85 announced in a filing on 3 June.

In total, this brought new equity raised in the second quarter to $1.246bn, “strengthening and improving AMC’s balance sheet, providing valuable flexibility to respond to potential challenges and capitalise on attractive opportunities in the future,” said CEO Adam Aron in a statement in June.

CNBC reported that Aron is taking an offensive strategy, including buying up empty cinema locations. It is based on the bet that retail investors continue to prop up the AMC share price.


Falling short

AMC’s financials for Q1 2021 weren’t great. The cinema chain operator ended the three months to the end of March with long-term debt of $5.4bn and $1.6bn in short-term debt. It also reported $4.9bn in operating leases obligations, of which around $600m is due in payments by the end of this year.

Unsurprisingly, revenue for the quarter was down 84.2% to $148.3m, while earnings per share were a loss of $1.42. Analysts had expected AMC to report a loss of $1.30 per share on $161.18m in revenue.


Safer options are available

The ETF with the highest exposure to AMC is SoFi Social ETF [SFYF], which has allocated it a weighting of 4.01%. The fund has a year-to-date daily total return of 44.17%.

It’s also the top holding in the Vanguard Russell 2000 Value ETF [VTWV] with a weighting of 1.56%. The fund has year-to-date daily total return of 22.02%

ETFs are possibly a safer way to invest in AMC. Though retail investors may push the AMC share price higher, there is the ongoing risk that the stock could be shorted by hedge funds.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

Continue reading for FREE

Latest articles