AMC Entertainment Holdings Inc (NYSE: AMC) has been an interesting stock to watch as of late. After all, if you want to see a battle ground stock, there’s no better example on the market. This has led to dramatic runs in both directions as the bulls and bears trade control back and forth.
So, what’s the deal?
Below, I’ll outline both the bullish, and the bearish arguments, and explain why I side with the bulls on this one.
Starting With The Bears
Before we get into why I believe AMC is going to fly ahead, it’s important that you understand both sides of the argument so that you can form your own opinion. So, here goes nothing.
There are a few different sides of the bearish argument, and I’m not going to lie to you, some of them make sense. Here’s what you need to know:
- Movie Theaters Were Struggling Prior To COVID-19. Even before COVID-19, movie theaters were having a hard time. With so much access to video content elsewhere, consumers have been reluctant to go to the theater, which doesn’t bode well for AMC, the largest movie exhibition company in the United States.
- COVID-19 Made Things Worse. When COVID-19 swept the country things got far worse. The company was forced to close its doors for an extended period of time. Unfortunately, that didn’t stop the bills from coming in, ultimately leading the company to move forward with dilutive offerings to keep the books in balance.
- A Recovery Isn’t Likely. Finally, the bears argue that considering the declining foot traffic the company experienced prior to the pandemic, a recovery isn’t likely. The bears say that consumers have gotten used to new forms of entertainment, and these other options will compete with AMC, resulting in a difficult, if not impossible, path to recovery.
The Bullish Argument
Sure, the bearish argument makes sense. After all, when was the last time you went to the movie theater? However, I side with the bulls on this one for several reasons:
- The Gloom & Doom Picture Isn’t Accurate. Sure, AMC has had a hard time and the pandemic has made it worse, there’s no question about that. But the idea that a recovery isn’t going to happen is absurd. The fact of the matter is that consumers have been cooped up in their homes for over a year. At the same time, vaccines are making their ways into arms, and the vast majority of theaters have reopened. This is a recipe for a comeback. People, looking for low-cost ways to get out of the house and enjoy freedom again, will likely look to the classic movie theater as a first option, not a last.
- Money, Money, Money, MONEY. AMC has raised a boatload of cash recently. Sure, dilution is never fun, which is what has turned many experts against the company, but in this case, it was a necessary evil that resulted in a strong balance sheet. Now, AMC has all the money it needs to get through the rest of this tough time, giving it light at the end of the tunnel. Raising that kind of money is a bode to the company’s resiliency. Afterall, what investment professional is going to give massive amounts of money to a company that’s destined to fail?Moreover, the company has been going through significant restructuring, putting it on even stronger financial footing.
- Retail Community Backing. The big wig experts writing articles for massive financial websites aren’t AMC’s target audience. The company’s audience is the everyday person. In the investing world, what we would call the retail community. Smart money players aren’t always as smart as they seem. There have been countless plays that these “smart money” experts have bet against, but the retail community got behind, and low and behold, “dumb money was right!” The fact is that the same investors that have sent the stock to the moon from time to time are the company’s target audience. Retail investors wouldn’t get behind AMC in droves if they didn’t fully believe in a comeback for the massive movie theater chain. This support, in and of itself, is a clear sign that a recovery isn’t only possible, it’s imminent.
The bottom line is that investors have never gotten rich buying stocks at the top. Buffett and several other gurus have made massive amounts of cash betting on the underdog, and while AMC may be the underdog in the suit-and-tie community, down here among the common folk, it continues to look better and better.
The Bottom Line
The bottom line is that both sides have valid arguments, and the battle will likely continue for some time. But, when looking at both sides, for me, the bullish argument is clearly the strongest one. This combined with the fact that Wall Street Bets has led a massive community of underdogs to become leaders by handing a David and Goliath-like smackdown to hedge funds, and the fact that retail investors are banding behind AMC, suggests that this stock has plenty more room to run ahead.