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Why I think the AMC Entertainment share price could keep rising

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·3-min read
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I have been watching the AMC Entertainment (NYSE: AMC) share price with fascination. Despite the company’s precarious financial position, investors have piled into the stock and its outlook has steadily improved.

I think there’s a good chance this could continue, which would support a higher share price.

AMC Entertainment share price outlook

AMC had an incredibly challenging 2020. The pandemic forced the company to close all of its cinemas, and revenues evaporated. This in itself was terrible news, but the group’s problems were compounded by the fact that it entered the pandemic with a lot of debt.

As such, over the past year, the world’s largest cinema group has been struggling to stay afloat and survive in a hostile environment.

However, the company’s outlook has changed dramatically over the past six months. Since the beginning of December last year, the AMC Entertainment share price has surged in value by nearly 1,300%. It is up 752% over the past 12 months.

In my opinion, how the stock got to this stage isn’t important. What is important is what management decides to do with this high share price.

Management is trying to capitalise on the increased interest for the stock by raising more money. Towards the end of last week, the company said it had completed a share offering to raise $587m of funding. This announcement came a day after it raised $230m from Mudrick Capital with another share sale.

More share sales are planned. In April, management put forward a proposal to issue an additional 500m shares, but it decided not to proceed. Nevertheless, the company is now saying it’ll ask shareholders to authorise the sale of only 25m additional shares. At the current market price, this would yield around $1.4bn of cash for the business.

Cash machine

As long as the market remains receptive to these share sales, AMC could continue to raise cash. It can use this money to reduce its debt load and strengthen the overall business. I think this could have a substantial positive impact on the AMC Entertainment share price.

Not only with the company benefit from a reduced debt load, but it should also benefit from the economic reopening.

That said, even the business itself has warned the current share rally may not be sustainable. “Our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last,” AMC said in a statement on Thursday.

If the stock starts to slide, management may struggle to raise more cash, and that may destabilise the group’s recovery.

Still, as long as current market conditions prevail and management continues to make the most of these conditions, I think the AMC Entertainment share price could continue to rise. As such, I’d buy the stock as a speculative investment, as I’m wary the party could come to an end at any point.

The post Why I think the AMC Entertainment share price could keep rising appeared first on The Motley Fool UK.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Motley Fool UK 2021