- AMC Entertainment (AMC) is far below its 2021 highs.
- The company has recently invested in a mining company.
- A high number of the shares of AMC stock are being sold short, but investors should not own it.
AMC Entertainment (NYSE:AMC) is trading far below the high that it reached in early 2021 during the meme-stock era. However, AMC stock is still trading well above its pre-pandemic levels.
On the positive side, the firm’s revenue is increasing as the economy reopens. But AMC’s revenue is still below its pre-pandemic levels, and the company remains unprofitable. Until those two situations change, investors should continue to avoid owning AMC stock.
On the other hand, there’s no question that AMC’s revenue is increasing. In AMC’s most recently reported quarter, its revenue jumped 53% versus Q3 to $1.17 billion. And its Q3 sales were 71% above the quarter before that, while the movie theater owner’s Q4 earnings per share were 40% higher than in Q3.
AMC’s revenue is now within shouting distance of the $1.45 billion of sales that the company recorded in the last quarter before the pandemic. But the price of AMC stock at that time was approximately $6.25.
Do you believe that the shares are worth four times as much as before the pandemic? Before you answer that, consider the fact that analysts, on average, do not expect the company’s revenue to surpass its 2019 levels until 2024.
A Shrewd Investment or a Boondoggle?
Recently, AMC announced that it would buy a 22% stake in a gold and silver mining company, Hycroft Mining Holding Corporation (NASDAQ:HYMC). AMC will also receive 23.4 million warrants that will enable it to buy more shares of HYMC stock for $1.07 per share.
Investors could argue that AMC is exploiting current trends with the deal. Precious metals have been rising in value because they are being used as hedges against geopolitical uncertainties and inflation. And the transaction is loosely in keeping with the company’s embrace of cryptocurrency that it initiated late in 2021.
For his part, AMC Chairman and CEO Adam Aron suggested that he believes Hycroft is “a company in an unrelated industry that appears to be just like AMC of a year ago.” Considering that HYMC stock closed today at $2.39, I concur with Aron’s statement.
It’s also worth noting that prior to the investment from AMC, HYMC stock was down significantly for the year, at a time when other mining stocks are soaring. And the price of gold is down from its recent highs following the Fed’s recent interest-rate hike.
Maybe the investment will end up helping AMC. Maybe the company really is playing chess while the rest of the market is playing checkers. But right now, it seems like the company is just buying firms that are in “hot” sectors i.e. crypto and precious metals.
AMC Stock Could be a Good Name to Trade, But It’s Not a Good Investment
More than 20% of the shares of AMC stock are being sold short, indicating that the shares may be boosted by a short squeeze at some point. However, analysts are not very bullish on the shares, as their average price target on AMC is just $7.63..
Analysts’ mean rating on AMC stock, not surprisingly, is “sell.” Nevertheless, the loyal band of retail traders who have been holding onto the stock may very well profit from trading it.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.