Written by Robert Thompson III | 2/1/21
For example, Silver soared 10% after investors on Reddit shifted their focus to the metal over the weekend. Therefore, Gold & Anivo Silver mines (ASM) rose more than 50% by sunrise. Pan American Silver (PAAS) and Wheaton Precious Metals (WPM) both increased by two-digit percentages. In fact, the ETF iShares Silver Trust (SLV) also rose about 10% on Monday. Although, #SilverSqueeze was trending over the weekend, still several posts on WallStreetBets say a surge in Silver will shift their focus away from GameStop. On Monday morning shares of Gamestop were down by double-digit percentages. Here is what the wallstreetbets community is saying about silver: u/MarioBuzo wrote “There is no silver short squeeze happening. NONE. NEVER,”.
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Brandobot89 wrote “I went into the WallStreetSilver subreddit and analyzed comments and posts. I found that 80% of them came from accounts mostly created in the last 2 days. Pretty suspect … who do these people really work for?!”. Some Redditors are concerned that the hedge fund Citadel will benefit from the surge in prices.
Reasons Why The AMC Entertainment Stock Bubble Would Pop Soon
Since, retail investors are pouring into AMC Entertainment as part of a marketwide attempt to trigger short squeezes (which is what happens when a chain reaction of short-covering actions causes an equity price to skyrocket). The rally has sent AMC stock up 525% year to date. But those who currently own shares in this movie theater operator might want to consider switching soon. The stock price bubble could pop at any moment. Here are reasons why.
1. AMC looks stunningly overvalued
Most importantly, according to the Wall Street Journal, retail investors are coordinating on social media to drive up the price of heavily shorted stocks. It started with Gamestop and spread to other easy targets like AMC, which had a short interest of 24% as of Jan. 27. The company now boasts a valuation that is wildly out of line with its fundamentals. With a closing price of $13.23 a share on Jan. 29, AMC’s market cap is $4.5 billion. Also, with revenue of $2.26 billion over the trailing 12 months, the stock has a price-to-sales (P/S) ratio of roughly two. Therefore, that multiple is not bad compared to the S&P 500’s average of 2.72. But AMC’s P/S ratio only tells half of the story without factoring in profit margins and top-line growth.
For instance, third-quarter revenue plummeted 91% to $120 million because of a collapse in movie ticket sales amid the coronavirus pandemic. However, The company has lost roughly $3.6 billion so far this year. management expressed significant doubt about AMC’s ability to continue as a going concern because of its cash-burning operations.
2. Management seems too optimistic
despite the grim wording in AMC’s third-quarter SEC filing, CEO Adam Aron sounds more optimistic in more recent public statements. He is confident that AMC can keep its doors open in 2021 because it has raised $917 million in new equity and debt capital since December. However, the surge in AMC stock may have bought the company even more time. In January, Silver Lake Group (a major AMC investor) converted $600 million of its convertible notes to stock at $13.51 per share. This move could dilute investors, but it will ease AMC’s debt burden, which stands at $5.8 billion as of the third quarter. The company also faces operating lease liabilities (deferred rent for its locations) totaling $4.9 billion. Although, Right now, AMC wants to chug along until enough of the general public gets vaccinated to end the coronavirus pandemic.
3. Studios are moving to on-demand streaming
if AMC outlives the pandemic, its stock isn’t necessarily a good investment for equity holders, who will face substantial dilution and a high debt load. Therefore, these factors will be a long-term drag on earnings per share (EPS) and not only, cash flow because of a higher number of shares outstanding, but, interest expense, and debt amortization. More importantly, the movie theater business may never return to its former glory. The industry was already in decline, with box office sales falling at a compound annual growth rate (CAGR) of negative 1.4% from 2002 to 2019. Also, the coronavirus pandemic may have accelerated this trend by encouraging studios to build up their streaming platforms.
In October, Walt Disney announced plans to reorganize its media division around streaming instead of theatrical releases.
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Conclusion
In conclusion, there are a lot of shouts and doubts when talking about AMC and Silver. You need to know the right information when dealing with investing. If you have any questions email us at info@Thompsonempire.com. In fact, we will also show you solutions and help you build your portfolio!
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