AMC Entertainment (AMC) Stock Has More Room To Run

AMC Entertainment Holdings Inc (NYSE: AMC) is headed for the top yet again, following up on the compelling growth we’ve seen over the past several trading sessions. The gains have been the result of a short squeeze, and while this may surprise you, there’s still potential for massive growth here. 

Allow me to explain. 

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There’s Still Potential For Massive Gains In AMC Stock

I’ve been following AMC for some time, and the manipulation on the stock by hedge funds has been compelling to say the least. Recently, the stock pushed to the top and is continuing on an upward trajectory, but if you think the short squeeze is over, you’re wrong. 

For a short squeeze to take place, there has to be heavy short interest. This happens when investors, often hedge funds, borrow large amounts of shares from long investors and sell them into the market immediately. The goal is for the stock to fall in value so that the short seller can buy the shares back at a lower price and return them to the long investors they borrowed the shares from. 

However, when prices rise, short sellers begin to take a hit, and often race to purchase shares in order to cut the bleeding. 

That seems to have already started on AMC stock, but the gains are likely far from over. 

You see, even though the stock has climbed dramatically over the past several trading sessions, short interest is still very high, sitting above 30%, meaning that about one in three shares of the stock are being held in short positions. 

So, we still have plenty of shorts to squeeze out of their positions here. 

Furthermore, the number of shares that can be borrowed for short positions is dwindling, and so too is the number of shares that can be purchased to cover the short positions. This creates a bit of an imbalance between supply and demand. With few shares available to short and few shares available to cover, demand is quickly outpacing supply, and as the law of supply and demand tells us, that means prices must rise further. 

At the same time, this scarcity of shares means that when it’s time to cover short positions, it may be difficult to do so. That often pushes short sellers out as they don’t want to get trapped into losses. 

David Is Beating Goliath

Since the controversy surrounding AMC started, the battle has been interesting to watch. David, or the group of retail investors, has been going head to head with Goliath, or a group of big money hedge funds. 

Surprisingly for many, David is proving to be stronger. 

As the saga continues, those who are holding the stock short are beginning to shake in their boots. They see significant losses ahead, but seem to be holding onto their positions in hopes of a crash; a crash that simply isn’t likely. 

Ultimately, retail investors are seeing two things:

  1. They’re Making Money. The push for the top in AMC stock has been an overwhelmingly profitable one for many. As a result, the retail crowd isn’t likely to back down and the pressure on hedge funds will likely remain. 
  2. They’re Fighting The Good Fight. When you read message boards, you’ll quickly realize that the retail backing of AMC has more to it than profitability. These investors are tired of hedge funds playing the stock market like a fiddle, and plan on showing the funds that they simply can’t continue on the path they’re on. 

Ultimately, retailers are fighting for a fair and equitable market for all, and making profit in doing so. As a result, there’s no sign that the retail crowd is going to back down any time soon. 

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The Bottom Line

The bottom line here is simple. AMC is a great company that was dealt a bad hand by COVID-19. While hedge funds aimed to capitalize on the company’s blues, the fact of the matter is that retail investors aren’t having it any more. 

As retailers continue to pile in and fight the David V. Goliath battle, making money in the process, it’s likely to continue. Moreover, all metrics point to continued potential for significant gains as shorts are squeezed out of their positions, making AMC stock one that’s hard to ignore. 

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