AMC Entertainment Is Heading for Another Week of Gains

what happened

Shares of AMC Entertainment (AMC -5.44% look like they’re going to close out the week some 11.6% higher than where they closed last Friday, according to data from S&P Global Market Intelligence.

Yet the company is actually ending on a down note as it heads toward posting its third consecutive day of losses. In late afternoon trading Friday, the movie theater chain was off more than 8% at 2:25 pm

Image source: Getty Images.

so what

The week started off strong after AMC CEO Adam Aron said he was looking for more “transformational [mergers and acquisitions] M&A” opportunities like the one that had him investing in gold and silver miner Hycroft Mining

That sparked a huge rally in AMC’s stock, sending shares soaring 45% in one day. The stock eked out a gain the next day too after having been down big in morning trading on Tuesday that even saw trading in its shares halted. But that should have been the signal the party was ending.

After two weeks of gains with shares more than doubling in value, AMC is now trending lower. No doubt profit-taking is playing a role in the decline. Traders have suffered nearly a year of continuous declines, so a strong rally was going to convince many it was time to get out of the stock and salvage whatever profits — or minimize whatever losses — they could.

now what

Traders might also be having second thoughts about the soundness of a strategy that would see the movie theater investing in far-flung businesses that have little to do with the Big Screen and Hollywood. Plus, there’s the added albatross of being investments in financially strapped companies.

Aron says he wants to use his experience from having raised $1.8 billion in liquidity at a time when AMC Entertainment was walking to the brink of bankruptcy. He contends the movie business is pretty much on autopilot now, and he can use the time and opportunity to help companies that are in situations similar to where AMC was.

There are two problems with that. First, Aron hasn’t “fixed” AMC as the theater industry is still struggling; attendance is still trending lower; and there are fewer movies scheduled for release this year.

A second and more significant problem is that the “experience” Aron hopes to cash in on was a rather unprecedented mix of events coming together that, generally speaking, isn’t likely to be repeated with many other stocks.

AMC became the meme stock poster child, and its stock soared; that was how Aron raised the money. Hoping to ride meme stock rallies over and over again as his plan suggests seems completely unworkable.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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