AMC stock price is in a freefall but a 200% jump is possible

AMC Entertainment’s (NYSE: AMC) stock price has become unloved and unwanted. The shares plunged to a low of $7.71, close to its lowest level on record. It has plunged by more than 89% from its highest level this year and by over 99% from its highest level during the pandemic.

Dilution machine

AMC Entertainment’s business is one of the biggest companies in the entertainment industry. The company operates the biggest movie theatre business in the United States. As such, the company suffered substantially during the COVID-19 pandemic.

A key challenge for AMC investors is that the company has transitioned into one of the biggest dilution machines in Wall Street. Most recently, the company said that it had raised over $300 million by selling its own shares. 

In all, AMC has seen the number of outstanding shares jump from 58.7 million in June 2022 to over 158 million. Issuing new shares is one of the worst things that can happen to investors.

It is often seen as the opposite of share buybacks or repurchases since it dilutes its existing shareholders. It also lowers a company’s earnings per share (EPS) and leads to a weak stock price.

AMC stock price also crashed after the company’s decision to convert APE preferred equity shares to AMC common stock. This move was also seen as highly dilutive. In a statement, the company said that the move was necessary to avoid bankruptcy,

The challenge for AMC is that it is still burning cash. The most recent results showed that the company had over $435 million in cash and short-term investments. It had over $922 million in the same period in 2022. 

Meanwhile, the company is set to experience headwinds because of the ongoing strike in Hollywood. Analysts believe that lack of content could hurt its top and bottom line in the coming months. A likely catalyst will be the upcoming Taylor Swift documentary that will be screened in AMC theatres.

AMC stock price forecast

My last AMC forecast was accurate, as you can read here. The weekly chart shows that the AMC share price has been in a strong bearish trend in the past few years. The stock has formed a descending channel that is shown in black. It has moved to the lower side of this channel.

AMC remains below the 50-week and 100-day moving averages. Most importantly, the shares are sitting at $7.71, a few points below the key support at $10.95, the lowest points in 2020.

Therefore, the risk/reward ratio for the stock seems a bit favourable for now. I suspect that the shares will likely bounce back as buyers attempt to retest the upper side of the channel at ~$40. This means that the shares could rise by more than 200% from the current level.

The alternative scenario is where the shares continue falling as sellers target the key support at $5.