It’s been quite the year for AMC Entertainment (NYSE:AMC). Exactly a year ago, the share price was trading around $3, having seen diminishing returns over several years as the movie theater operator struggled. This all changed in January, when retail traders and online chat rooms banded together to propel the AMC share price higher. After a volatile year with a high of over $62, the bubble appears to be bursting. So is this the end for the meme stock?
Reasons for the slump
Yesterday, the AMC share price dropped 15%, to close the day at $23.24. As mentioned above, this still represents an eight times return from a year ago. However, the stock has halved in value in the past month. I see a few reasons for this.
Firstly, profit taking. The rise of the share price this year has been from retail and institutional investors. For the latter, December is a period where trades usually get closed to tidy up the year. Particularly for hedge funds, for accounting processes, a lot of stocks will be sold (even if they get bought again in January). For retail traders, it might not be for accounting purposes, but to help fund Christmas presents or other needs!
Secondly, souring sentiment. This has come from a couple of different places. Partly it has come from insiders such as the CEO and CFO selling off large chunks of shares. Last week, CEO Adam Aron sold $9.65m worth of AMC stock. This had been clearly stated before it happened, but it’s still a negative for the AMC share price.
Souring sentiment has also come from the rise of the Omicron variant. It’s still too early to know if restrictions will need to be put back on certain sectors. However, cinemas are a likely target to have restricted capacity in order to help stem the spread of the virus. In the event, this would hamper revenue for AMC in 2022.
Is the party over for the AMC share price?
Personally, I do think that the party is over for AMC. I think most investors deep down knew that the meteoric rise of the share price earlier this year was driven by speculation rather than fundamental reasons. Whatever the reason was, it didn’t stop some investors making high profits in a short space of time!
I think that some are realizing that speculative investors are moving on to new opportunities. I’d imagine some are looking to metaverse stocks instead.
Does the AMC share price really have good value, even at $23? Given the financial results recently, along with concern over operating under Omicron, I doubt it. Therefore, I won’t be looking to buy shares in AMC anytime soon. Rather, I’ll look to try and find the next key theme for 2022, that I think could be regarding the metaverse.
