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Hargreaves Lansdown investors are buying AMC Entertainment stock. Should I buy too?

first_img I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. Our 6 ‘Best Buys Now’ Shares Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. UK investors have been buying shares in US cinema operator AMC Entertainment (NYSE: AMC) recently. Last week, AMC was the fifth most purchased stock on Hargreaves Lansdown.Should I follow the crowd and buy AMC stock for my portfolio? Let’s take a look at the investment case.5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…AMC Entertainment: could we see another short squeeze?I can see why AMC Entertainment stock is popular right now. For starters, AMC looks like a good reopening stock, in theory.In its first-quarter results, AMC said the majority of its 600 cinemas in the US were open. However, they were only operating at a capacity of between 15% and 60%.Meanwhile, in Europe, only about 27% of its cinemas were open at the end of the first quarter. Now that vaccines are being rolled out and social distancing measures are being relaxed, the company should be able to boost its capacity significantly.Secondly, there’s talk of another short squeeze here. This occurs when a heavily-shorted stock is in high demand from investors. The demand pushes the share price up, forcing short sellers to buy shares too to close their short positions. This pushes the share price even higher.According to HypeEquity, which analyses social-media activity on stocks and tracks what it calls ‘social sentiment analysis’, mentions of AMC stock spiked more than 800% last Tuesday morning. And roughly 8% of the comments on the stock included the word ‘squeeze.’I could lose money on AMC stockI have a few concerns about investing in AMC stock however. One is the company’s valuation. Right now, AMC has a market-cap of around $5.4bn. While that’s not huge by today’s standards (Netflix has a market-cap of $220bn), it’s about seven times the company’s market-cap at the end of 2019 – when it generated an all-time revenue high of $5.5bn for the year.This valuation just doesn’t make any sense, to my mind, when you consider that revenues are likely to remain depressed for a while.Another concern is analyst sentiment. At the moment, the average price target for AMC stock is just $4.86. That’s about 60% below the current share price. That’s a lot of risk to the downside.A third issue is that the cinema industry is facing structural challenges due to competition from streaming businesses, such as Netflix and Disney. Figures show US box office ticket sales peaked in 2002 at 1.576bn tickets and fell to 1.229bn in 2019.Finally, let’s talk about the short interest at AMC. According to data provider 2iQ Research, AMC’s is currently a high 33%. That tells us a lot of sophisticated investors are betting that the stock is going to fall.Of course, with that level of short interest, we could potentially see another short squeeze. However, I don’t think buying a high-risk stock for a potential short squeeze is a smart investment strategy.It’s worth pointing out that 2iQ’s data shows that total shares on loan actually increased from about 110m to 124m late last week, which suggests short sellers are ramping up their downside bets on the stock. This is bearish, in my view.AMC stock: my move nowWeighing everything up, the risks outweigh the rewards here, in my opinion. I think there are much better stocks I could buy today. Simply click below to discover how you can take advantage of this. I’m sure you’ll agree that’s quite the statement from Motley Fool Co-Founder Tom Gardner.But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.What’s more, we firmly believe there’s still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.And right now, we’re giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool. “This Stock Could Be Like Buying Amazon in 1997” Image source: Getty Images Enter Your Email Address Edward Sheldon owns shares in Hargreaves Lansdown. The Motley Fool UK owns shares of and has recommended Netflix and Walt Disney. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Edward Sheldon, CFA | Monday, 24th May, 2021 | More on: AMC Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge! Hargreaves Lansdown investors are buying AMC Entertainment stock. Should I buy too? Like this one… See all posts by Edward Sheldon, CFAlast_img read more