Is AMC stock a buy now? Analyzing the latest visit trends

AMC Entertainment Holdings Inc. (NYSE:AMC) shares surged 1.8% on Friday to extend the current 2-week gains to 16%. The company reports its fiscal second-quarter results on 5th August, and analysts are optimistic amid increased attendance in theaters during the summer. 

Although digital film distribution channels like Disney Plus and HBO Max have affected movie theater revenues, things could return to normal soon as actors raise concerns.

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Black Widow cast Scarlett Johansson is suing Disney for digitally distributing her film. She said the digital distribution of the Black Widow film affected her bonuses. If the lawsuit pays off, it could have a ripple effect on the streaming industry, turning the tables back in favor of movie theaters.

If other actors get on board, they could force movie distributors to limit their distribution to theaters, thereby boosting revenue potentials for theater companies like AMC.

Traffic trends: ‘not all bad news’

Olvin is a London and New York-based tech firm that launched an analytics platform called Almanac that leverages billions of real-world data points to better understand traffic trends. Speaking to Invezz, Olvin’s VP of AI Ella Walters said the movie theater business is not recovering as quickly as other forms of leisure, such as coffee shops.

However, Walters said it is “not all bad news” for AMC as the movie theater company has seen increased visits in recent months. While future performance depends on community spread rates over the coming days and weeks, Olvin has come up with three different scenarios and models to better help Invezz conclude if AMC stock is a buy or sell.

The first scenario is an “optimistic” outlook where all COVID-19 restrictions are removed. The second scenario is a “stable” outlook where current restrictions are kept as is. Last, a “negative” outlook would introduce a new set of restrictions.

New York has a 56.8% vaccination rate and shows a “positive increasing trend” for both the “optimistic” and “stable” scenarios. The difference in forecasted visits between the two reaches 20% by September. Walters explained:

This suggests that behaviourally NYC has not yet returned to normality and will continue to improve if no more restrictions are imposed.

By contrast, Nevada lags behind with a 44.1% vaccination rate and is showing a very flat trend in the forecast between the optimistic and stable scenario and a “steep negative trend” for the ‘negative’ outlook. One possible conclusion from this data set is that “behavior is already closer to normality.”

Dr. Gottlieb: Delta variant is slowing

Taking a look at the latest headlines from the COVID-19 front could offer more insight into how AMC stock will perform since it is dependent on foot traffic. According to former FDA commissioner Dr. Scott Gottlieb, the spread of the Delta variant appears to be slowing in some states. He said on CNBC’s “Squawk Box” that he believes the real COVID-19 infection rate likely stands at 1 million a day.

The staggeringly high number is in part due to a large number of asymptomatic infections and many people taking advantage of at-home testing kits.

Meanwhile, the rate of transfer in many Southern states is above 1.0 but the number is falling, he said. This implies the Delta variant has “turned the corner” and the epidemic is “running its course” and should fall below 1.0. Commenting on New York, an important market for AMC, he said if infection rates rise the public crisis “won’t be anywhere near as dense” compared to 2020.

So, should you buy AMC stock in August?

From a valuation perspective, AMC stock looks substantially overvalued. The company’s shares trade at a price-sales ratio of 42.88, making it relatively expensive. However, its bottom line looks promising, with growth expectations of 91.90% this year and 74.40% next year. 

Therefore, it seems investors are betting on AMC’s earnings prospects rather than its current performance. But things could get better if screen attendance continues to recover as noted by Walters.

Technical overview: the rebound seems poised to continue

Technically, AMC shares appear to be trading within a descending channel formation in the intraday chart. However, the stock price recently bounced off the trendline support to stage a potential recovery. The rebound is far from reaching overbought conditions, meaning there is more room to run.

Investors can target extended rebound profits at approximately $45.27 or higher at $53.36. On the other hand, the support levels are $32.39 and $24.55.

Bottom line: the catalyst for buying AMC stock rebound

AMC shares seem poised for continued rebound ahead of fiscal Q2 results next week. In addition, the news about lawsuits against film distribution companies for failing to release movies through theaters exclusively could also boost the stock price. 

In addition, although the company seems to be steeply-priced based on the P/S ratio, its earnings growth prospects could be exciting to investors. 

Therefore, it could be time to buy AMC shares, as the rebound continues ahead of Q2 results.

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