AMC stock struggles to make headway as retail runs out of steam

  • AMC stock struggles to hold gains on Monday as meme stock momentum slows.
  • AMC Entertainment closes up 0.38% at $15.86 on Monday.
  • The meme stock surged on the back of a confusing investment in a gold miner.

AMC stock failed to make any headway on Monday as it appeared some of the recent upticks in meme stocks ran out of steam. This is not too surprising when we take into account some surprisingly hawkish commentary from Fed chief Powell on Monday, who put extra rate rises back on the table and the possibility of a 50 basis point hike also in play. This led to a swift dump in bonds, which as a result saw bond yields rise (bond prices and yields move opposite one another).

The US 10-year yield is headed straight for 2.5%, and the 2-year yield is currently at 2.18%. As a general rule of thumb, higher interest rates hit growth stocks disproportionally. This has to due with discounting future cash flows using a higher discount rate (interest rate), and also many growth stocks carry a lot of debt to fund growth. Funding debt is harder with rising interest rates. In fairness to AMC, it recently did restructure some of its debt, but it still will face challenges from higher rates and higher funding. AMC Entertainment tried to raise cash from shareholders last year, but this was met with resistance.

Read more on Boeing’s crisis

AMC Stock News: Gold does not glitter

Many have touted the investment in gold miner Hycroft Mining (HYMC) as a smart diversification strategy into gold. Indeed, gold prices are rising this year and are predicted to rise further with soaring inflation and geopolitical tensions. Hycroft Mining is not a gold vault though. It has one gold mine in Nevada, which is not profitable.

Read more on Gold Price forecast

We are unsure if the quality of gold is high from this mine, but judging by the costs involved from Hycroft’s last few years’ income statements, it is an expensive operation. Finding gold is all well and good, but getting it out of the ground is the more important part. Hycroft Mining has not turned a profit in several years. The company last November had to lay off huge amounts of staff and said it needed to raise cash to keep going. AMC has bought some decent publicity for itself and appealed to its retail shareholder base, but how long can it keep doing that? The AMC apes will eventually wise up to this show. The last financial statements show AMC has a large pile of cash, over $1 billion but an even larger pile of debt, over $5 billion. Total liabilities totaled nearly $13 billion. 

AMC Stock Forecast: A classic downtrend

We maintain our $8.95 target and see AMC stock struggling for gains once the latest growth rally peters out. 

AMC stock chart

AMC stock chart, monthly

We put up the monthly chart above to show where AMC stock has come from. Trading sub-$10 does not look that much of a stretch given past AMC stock price action. 

AMC remains in a strong downtrend with classic lower highs and lower lows. The most recent is at $13, though a break will confirm more losses to come. Only getting above $21.04 turns the trend around, and this is a long way off. 

AMC stock chart

AMC stock chart, daily

The author is long puts in HYMC.

Our Source

Please Like and Share:

Leave a Reply

Your email address will not be published.