AMC Stock: Overvalued Despite Best-Case Scenario Possibility

Top meme stock and movie theatre chain AMC Entertainment (NYSE: AMC) had an eventful 2021, to say the least. Thanks to Redditors over at WallStreetBets, the stock blasted off in an unprecedented rally that few saw coming. Indeed, 2021 was the year of the meme stock.

With the page turned on a new year, it’s tough to say what type of action is up ahead. In theory, WallStreetBets traders could return with renewed optimism in a push to squeeze short-sellers.

That said, AMC stock is likely to continue falling back to Earth, given it has still yet to surrender the gains enjoyed during the May-June spike.

With rich multiples and trading at around $25 per share, I remain bearish on the stock. Although the movie theatre industry may have the weight of COVID-19 lifted off its shoulders in 2022, I just cannot get behind the name at these valuations.

What If Omicron Is Final COVID Wave?

Like other companies that have seen their businesses and cash flows be decimated by COVID-19, AMC Entertainment could really stand to benefit from the end of this horrific pandemic.

Still, AMC isn’t like most other reopening stocks. It’s a top 2021 meme stock. The risk/reward doesn’t look great, even if a bull-case scenario for reopening occurs sooner than expected.

While the coronavirus is unlikely to be eliminated this year, a move into endemic is still possible. If this current Omicron-driven wave is the last major one, the future looks bright for so many firms eagerly awaiting a sustained reopening.

At this juncture, it remains impossible to tell what waves, if any, are up ahead, given a new variant of concern can be discovered at any time.

Even assuming a bull-case scenario that sees the pandemic go endemic this year, AMC stock is still richly valued. Without help from WallStreetBets, it’s hard to believe that AMC can reach its 2021 high under its own power, even if COVID-19 pressures fade to more manageable levels, if not entirely.

More Catalysts

However, it is encouraging that the managers over at AMC have made the most of its windfall provided by WallStreetBets.

New share offerings, marketing spend and debt reduction have really improved the company’s fundamentals. Further, there are compelling catalysts on the way, with a fresh theatrical movie slate, a theatre-only pivot by video streamers, and the potential easing of pandemic restrictions following Omicron’s peak.

Undoubtedly, the straight-to-stream-and-theatre (or hybrid) model for big-budget releases has been met with muted success. In 2022, big studios like Warner Media of AT&T (T) are gravitating back to movie theatres, with a theatrical release strategy that the firm is standing by, even in the face of soaring Omicron cases.

Such a return of the theatre-first release model could give movie theatre firms new wings to fly higher. For AMC, though, the valuation already looks so divorced from the fundamentals that noted catalysts or quarterly beats may not be as material to the stock.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, AMC stock comes in as a Moderate Sell. Out of four analyst ratings, there are two Hold recommendations and two Sell recommendations.

The average AMC price target is $8.17. Analyst price targets range from a low of $1 per share to a high of $16 per share.

Bottom Line on AMC Stock

Many analysts remain bearish, with no Buy ratings and a consensus price target calling for nearly 70% in downside.

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Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.