AMC Entertainment (NYSE: AMC) stock price is going parabolic this week, as I have long predicted here, here, and here. In another report in February, I argued that it was always darkest before dawn for a beaten-down stock like AMC. Now, it soared by 78% on Monday and is up by another 52% on Tuesday.
Why AMC Entertainment is soaringAMC Entertainment is not the only meme stock that is soaring. GameStop (GME) stock price surged by over 74% on Monday and is now up by over 47% in the pre-market session as I predicted last week when I noted that it could jump by 140%.
The main reason for the rally is that Roaring Kitten, a popular day trader returned to social media, sending memories of 2021’s meme stock rally that pushed many highly-shorted stocks sharply higher. AMC jumped from less than $10 to almost $400 while GameStop soared to $120.
Other popular meme stocks that jumped at the time were companies like Blackberry, ContextLogic, Bed Bath & Beyond, and Clover Health. Some of these companies have joined the new rally.
AMC’s surge is happening at a time when it is trending in top social media companies like X and StockTwits. It is also happening in a high-volume environment. Data by Yahoo Finance shows that the daily volume on Monday stood at over 482 million shares, up from 24 million on Friday.
Worrying fundamentals but there’s hopeAMC’s stock surge is happening at a time when the company is going through weak fundamentals. The most recent earnings revealed that its revenue dropped in Q1, partly because of the weak box office releases during the quarter.
Worse, the management warned that the company’s earnings will remain under pressure in Q2 because of last year’s Hollywood strikes.
Nonetheless, the company expects that the slated releases in the second half of the year will offset H1’s weakness. It also hopes that its collaborations with musicians like Billie Eilish will help to boost sales. It will be the second-biggest musician release in theatres after Taylor Swift’s Eras Tour.
The other big concern is that the company has a mountain of debt and leases. The most important one is a $3 billion maturity scheduled for 2026 and which the company is negotiating to extend.
As I wrote on Friday, there is a high possibility that the company will renegotiate and prevail on these maturities. That’s because it is in everyone’s interest to do that. Also, AMC has proven that it is still generating sales and maintain a market share in the cinema industry.
The short-term risk for AMC stock is that the company will likely use the surge to raise additional capital. It has already raised over $200 million by selling shares earlier this year and billions of dollars since 2021. It used these funds to fund operations and reduce its debt.
What next for AMC stock?
Technically, the ongoing AMC share price surge happened after the company formed a falling wedge pattern. In price action analysis, this is one of the most bullish signs in the market, which explains why it has surged.
Therefore, I suspect that the Fear of Missing Out (FOMO) will help the stock to jump to the crucial resistance level at $11.50, its highest swing on November 6th last year. The stock will then pull back, possibly if the company decided to raise capital soon.
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