Growth stocks have been getting hammered lately, thus, putting a damper on the speculative crowd and so-called “meme stocks.” That said, I wouldn’t really consider AMC Entertainment (NYSE:AMC) to be a growth holding, but AMC stock is most definitely a meme stock.
Overall, GameStop (NYSE:GME) got things started in January, but AMC has carried the torch a few times. And in the last few quarters, we’ve seen a full-on meme push in this stock as well.
Not only have there been a few meme-leading short squeezes in the stock, but it’s made headlines for actions that are aimed at firing up short squeezes. Things like teasing a partnership with GameStop, and AMC CEO Adam Aron saying the company is looking into NFTs.
While a company accepting cryptocurrency isn’t necessarily begging for a meme treatment, AMC’s directives seem to suggest that management is at least hoping it results in a surge for the stock price.
So, is there one last squeeze left in the works for 2021 for AMC stock? Let’s take a closer look.
Trading AMC Stock
Shares of AMC stock are putting in a series of higher lows and lower highs, giving us a wedge formation. That’s a type of consolidation, and given AMC’s rally in the second quarter, consolidation is exactly what the doctor ordered.
The share price exploded from sub-$10 to more than $70 in just a few weeks. And while AMC stock was able to hold up over the $50 level for awhile, it eventually broke down and dropped to roughly $30.
With a nice double-bottom low to measure against (around $30), AMC went on a powerful run. Shares topped near $53, put in a doji candle for the day (suggesting some indecision among investors) and promptly reversed lower. This time, though, shares double-bottomed near $33.75 — a higher low vs. the prior support area.
With that in mind, could we finally see a break out of the wedge?
Well, AMC stock is trying to do just that. It has been stymied by downtrend resistance (blue line), but the stock was finally able to close over this measure on Friday, Nov. 5.
What bulls want to see now is a push through $44.50. This area marks the high for both October and November. If we can get a push through this mark in the next few weeks, it will give us a monthly-up rotation.
That will put the September high near $53 on the table, followed by the 61.8% retracement near $56 and the third-quarter high at $57.71. Above that, and we could be talking about a possible meme squeeze.
On the downside, though, a move below $33.75 opens the door to the 200-day moving average and the key $30 level.
Will Earnings Trigger the Squeeze?
AMC Entertainment is due to report Q3 earnings after the close on Monday. In turn, the report very well could be the deciding factor in whether we get a meme squeeze in AMC stock before 2022.
Why? Because technically the growth doesn’t really justify’s AMC’s valuation. The company’s current stock price translates to a market capitalization of more than $22 billion. That’s roughly nine times this year’s current revenue forecasts of $2.4 billion.
Analysts are certainly bullish, expecting about 90% growth this year and next year. Let’s round up to 100% growth for both years. That gets us to $4.96 billion in revenue for year-end 2022. Compare that to analysts’ current expectations of $4.55 billion in sales, and it is actually closer to the current 2023 consensus estimate of $5.2 billion in revenue.
Even in that very rosy scenario, we’re still talking about a major jump from 2022 revenue. And let’s keep things in perspective. While we’re talking about some big-time growth estimates, realize that AMC did $5.47 billion in sales in 2019.
So even after back-to-back years of strong growth (and even when we account for above-consensus results), AMC still isn’t achieving pre-Covid revenue results.
There’s also the consideration that — again pre-Covid — AMC couldn’t generate meaningful growth. It churned out revenue of $5.08 billion, $5.46 billion and $5.47 billion in 2017, 2018 and 2019, respectively.
Lastly, keep this in mind: Until 2021, AMC stock rarely traded with a price-sales (P/S) ratio of 0.5. Now, it’s easily ten times that figure.
Bottom Line on AMC Stock
We failed to mention that analysts expect AMC to lose almost $3 per share this year and another 74 cents per share in 2022. So investors really are not chasing value at these prices, they are chasing a narrative.
That said, a stronger-than-expected quarter and a better-than-expected outlook would go a long, long way in resolving some of these concerns. And it may even help trigger the type of meme squeeze we’re looking for.
There is a rough estimate for AMC’s short interest likely sitting between 17% and 19%. That’s high, but not so high that we have any sort of short-squeeze guarantees to lean on. In short, the bulls essentially need momentum to continue because the fundamentals just don’t justify the stock price.
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