Analyzing AMC Entertainment (NYSE: AMC) Stock Price Action

The world’s largest cinema operator AMC Entertainment NYSE: AMC stock has been on a rollercoaster ride in 2021 as a “meme” stock following on the coat tails of GameStop NYSE: GME. There have been numerous stories idealizing the stock as a stronghold in the battle between the main street versus Wall Street that has centered around short-squeeze prone stocks. Putting the rhetoric aside, a closer look at both fundamental and technical factors cam present price inflection levels that nimble traders can trade (at their own risk). The fundamentals aren’t pretty and any trading in the shares should be speculative at best. The Company is by no means out of the woods, with massive debt ($5.8 billion and $450 million in deferred rents), continuous share dilution, COVID restrictions and closures, lack of movie releases, stifling demand and approximately (-$100 million) monthly cash burn at the end of Q3 2020. This doesn’t even address the threat from streaming services, the upside doesn’t look so bright. However, details will emerge in the Q4 2020 earnings release at the end of February 2021. In the meantime, here’s some price analysis for seasoned short-term traders and speculators.

Limited Lifeline

The Company is the world’s largest theater chain and the hardest hit by the pandemic due to its exposure. Peer stocks like Cinemark NYSE: CNK and IMAX NYSE: IMAX have been able to recover while AMC was written off as a cautionary tale on its way to bankruptcy without heavy cash infusions. In fact, Cinemark and various operators were anxiously circling the wagons to pick up and takeover locations anticipating liquidation. While, AMC was able to rise from the ashes thanks to expensive financing options, the Company has done so at the cost of major dilution to shareholders. Each offering adds to the shares outstanding thereby raising its market capitalization. AMC’s market cap is three times higher today than it was pre-pandemic in Q4 2019. The Company has runway through 2021 with the funding but investors should also be aware of future financing actions that could further dilute equity. In reality, the Company actually completely missed out on the short-squeeze, whereas investors Silver Lake Partners walked away with major windfalls. The question is whether AMC can buy enough time to outlast the pandemic and return to “normal levels”, which were already contracting.  

At-the-Market-Equity Sales Program

On Jan. 27, 2021, AMC announced wrapped up its at-the-market-equity-sales program to raise an additional $304.8 million selling 63.3 million shares around $4.81 per share. Unfortunately, the stock also squeezed up to $20.36 that day before collapsing. Talk about rotten timing. While the AMC CEO declared that bankruptcy concerns are now off the table as the Company had raised nearly $1.2 billion in fresh capital since mid-December, the monthly burn rate has been nearly $100 million before the rollback on the heels of the second surge of COVID cases in Q4 2020. The share dilution has grown total shares outstanding to 287 million shares, which could actually be a higher number.

 When looking at the 2020 sales figures, it’s mind blowing. Q1 2020 revenues were $1.79 billion, then collapsed by (-99.7%) to just $5 million due to stay-at-home mandates and location closures. Revenues started to slowly creep back up hitting $184 million for Q3 2020. As the nation’s largest cinema chain with almost twice as much exposure as Cinemark with over 8,000 screens, the downturn impacts AMC much harder. Could AMC be a turnaround story based on how quickly theaters can reopen and the timing of major motion picture releases? That’s a tall order.

Q3 2020 Takeaways

On the Nov. 2, 2020, Q3 2020 conference call CEO Adam Aron, stated that 78% of domestic theaters and 90% of international theaters were open at the end of September. However, attendance was down (-97%) YoY in the U.S. and (-82%) internationally due to COVID-19 effects. The average monthly cash burn was approximately $100 million. Due to the surge in COVID cases, many geographies have again rolled back and instituted capacity restrictions especially with restaurants and movie theaters. The actual number of operating theater locations and the current cash burn is a major question for investors. Additionally, the delay of major motion picture releases and the transition to streaming releases by Disney NYSE: DIS and especially Warnermedia HBO Max NYSE: T constricts supply amidst non-existent demand.

Silver Lake Cash Out

On Jan. 28, 2021, Silver Lake closed out its stake in AMC by converting its $600 million 2.95% convertible notes at the $13.51 per share conversion price. While shares closed that day at $13.26, Silver Lake likely collared massive profits with options or even shorting the box to cover on the conversion at $13.51 (approximately 44.4 million shares).

MKM Partners Downgrade

On Feb. 1, 2021, MKM Partners downgraded AMC to a Sell from Neutral citing that while liquidity is no longer an issue, the cost for solvency came at a steep price due to the 75% share dilution occurring in the past several months on top of the $5.75 billion debt in addition to the $450 million overhang of deferred rents. Rent is the more expensive fixed cost for the Company and the $450 million figure will likely be adjusted higher on the next earnings release.

Decoupling with GameStop Price Action

Under normal market conditions AMC stock would be moving with its peer group CNK and IMAX shares. However, currently, AMC shares are pinned to the price action of GME stock on elevated volume. True price discovery likely won’t occur until AMC trading volume dissipates back to pre-squeeze levels below 100 million shares daily and the stock decouples with GME stock movement. This will eventually happen with enough time and may already be occurring as AMC shares are not reacting as buoyantly on GME stock bounces. Overlaying both charts on intraday time frames help illustrate when the decoupling occurs.

 AMC Price Action Analysis

Using the rifle charts on the monthly, weekly and daily time frames provides a broader view of the playing field for AMC shares. The monthly rifle chart is starting to form an uptrend with the 5-period moving average (MA) crossover through the 15-period MA as the monthly stochastic stalls just above the 20-band. The monthly 5-period MA support sits at $5.77 with 15-period MA support near the $5.29 Fibonacci (fib) level. The weekly rifle chart is uptrending with a rising 5-period MA support at $5.61 and 15-period MA at the $4.01 fib. The weekly market structure low (MSL) buy triggered above $4.39 before the short-squeeze mania kicked in.  The daily rifle chart is in a make or break with a stalled uptrending and a falling stochastic mini inverse pup. The daily 5-period MA resistance sits at the $8.81 fib and threatens to turn into a downtrend is it crosses over the 15-period MA at $7.35. On the flipside, if the daily stochastic manages to cross up while shares rally back above the daily 5-period MA, then a potential pup breakout can form. However, the slope of the falling 5-period MA and inability to yet test the 5-period MA suggests further near-term weakness. There is a daily market structure high (MSH) sell trigger that can accelerate selling under $6.40 (below the monthly MSL trigger at $6.40). Bulls will try to protect that area, but failing that, expect a move towards the gap fill area which is the $6.00 to $5.19 level. Since the monthly 5-period MA and weekly 5-period MA converge in this range as well, it can act as a near-term support and potential coil area back towards the daily 5-period MA, for nimble seasoned traders seeking a short-term bounce. However, a $5.00 breakdown can accelerate margin calls and stop-loss selling down towards the $4.39 weekly MSL trigger area.