Photo by Donreál Lunkin on Unsplash

AMC (NYSE: AMC) stock price continued its freefall this week as concerns about its business and perpetual dilution continued. It has now plunged to an all-time low of $4 and is about to lose its $1 billion market cap. This is a sharp collapse for a company that was valued at over $37 billion a few years ago.

Is AMC a bargain now?

AMC share price has collapsed for three main reasons. First, it is one of the most dilutive companies in the market as it has boosted its outstanding shares sharply in the past few years. AMC now has over 198 million outstanding shares, up from 5.9 million a few years ago. This means that long-time holders have continued to lose their value in this period.

Second, AMC is still highly leveraged, with over $4.75 billion in debt and $7.5 billion in deficits. It is also a cash incinerator that has burned over $400 million in the trailing twelve months. This makes it a high-risk company as interest rates remain at an elevated level.

Further, there are concerns about comparables this year after it did well last year because of the strong blockbusters. Barbie and Oppenheimer attracted millions of Americans to AMC theatres and it is unclear whether there will be comparable movies this year. 

Some of the top releases this year will be Deadpool, Beetlejuice, Ghostbusters, and Despicable Me, among others. It is unclear whether these movies will attract more visitors as we saw in 2023.

Therefore, with AMC, we have a highly leveraged company that is burning cash, diluting investors, and one that has no major catalyst this year. It is also not expected to turn a profit any time soon, meaning that its cash burn will likely continue this year. Fortunately, it has a $1 billion cash buffer after raising money last year.

On the positive side, AMC is likely entering a new normal and its valuation is a bit modest based on historical standards. For one, before the pandemic, AMC was valued at over $4 billion, which is higher than the current $1 billion. The management has also done a good job to reduce its debt.

Therefore, I believe that AMC belongs in the high-risk and high-reward basket of companies this year. This is where the stock could continue plunging as concerns mount. But again, there is a likelihood that it will bounce back as its business improves. Remember, analysts expect box office sales will jump to $10 billion by 2026. We have seen this with Estee Lauder, whose shares popped after publishing its earnings.

AMC stock price forecast

(Click on image to enlarge)

The weekly chart shows that the AMC share price has moved horizontally in the past few months. It has crashed below all moving averages while the Average True Range (ATR), the popular volatility gauge has slumped. While this is a bearish sign, there is a possibility that it has entered the accumulation phase of the Wyckoff Model.

This means that the stock has room to rebound this year if it shows signs that its business is improving. If this happens, the shares will likely rebound to about $5 in the coming months. The key catalyst to watch will be its earnings set for March 1st.

More By This Author:

AUD/USD Forecast: RBA Interest Rate Decision Preview
Mcdonalds Comes In Shy Of Revenue Estimates In Q4
Dogecoin Braces For Impressive Rally This Week: Here’ Why