Short selling data can help investors avoid big losses. Generally speaking, short sellers are highly-intelligent traders that have done their research. If they’re targeting a stock, it can pay to approach that security with caution.
In this report, we are going to highlight some interesting short selling activity at AMC Entertainment Holdings Inc (AMC:US). AMC Entertainment is an American cinema operator. The largest cinema chain in the world, it currently has around 600 theatres in the US and 360 in Europe. The company is listed on the New York Stock Exchange and has a market capitalization of $5.6 billion at present.
AMC Entertainment: Short Selling Activity
An analysis of short selling data on AMC Entertainment reveals several red flags. The first is that short interest is 35.1%, which is very high. At present, around 132.7 million AMC shares are on loan. This tells us that short sellers are aggressively targeting the stock.
The second red flag is that the stock has a very high ‘Borrowing Activity Rating’ (BAR) of 10. BAR represents the level of demand to borrow a given stock, with a score of 1 indicating a low demand and a score of 10 indicating a high demand. The scoring method includes inputs from outstanding loan fees, new loan fees, new loan volume, and utilization rates. A score of 10 tells us that demand for the stock from short sellers is very high right now.
AMC is Facing Challenges
AMC Entertainment – which experienced a huge short squeeze back in January after Reddit traders decided to take on hedge funds by aggressively buying heavily shorted stocks – is facing a number of challenges right now.
Firstly, ticket sales remain depressed due to Covid-19 social distancing measures. As of 31 March, AMC was operating its US cinemas at a capacity of between 15% and 60%. Meanwhile, in Europe, it was only operating around 27% of its cinemas.
Secondly, box office ticket sales in general are trending down due to competition from streaming businesses such as Netflix, Disney, and Amazon Prime. According to data from the-numbers.com, box office ticket sales declined from a peak of 1.576 billion tickets sold in 2002 to 1.229 billion tickets sold in 2019.
Third, the company has a mountain of debt on its balance sheet. At the end of March, it had $813 million in cash and $5.46 billion in corporate borrowings in its books.
It’s worth noting that the average analyst price target for AMC is just $4.86. That’s approximately 60% below the current share price.
Putting this all together, we think caution is warranted towards AMC Entertainment stock right now. In our view, the high level of short interest is bearish.