Cheniere Energy: the Russian-Ukrainian conflict could benefit this LNG supplier

The liquidation of the rate hike was bad news for many speculative stocks. This is especially the case for Reddit favorites of traders even as AMC Entertainment (NYSE:CMA) and GameStop (NYSE:EMG). In the case of AMC stock, the Federal Reserve’s “return to normal” with its proposed interest rate changes has sent the stock down more than 40% since Jan. 3.

Source: various photographs /

That’s on top of the drop seen between Thanksgiving and New Year’s, when the Fed first announced it was raising rates. In total, shares of the movie theater chain and the king of meme stocks have fallen from just under $40 per share to around $15 per share at the time of this writing.

In my articles on this popular meme game, I have long discussed the inevitability of its return to a price in line with its underlying value. Admittedly, it took time. Even now, as one of the factors that pushed it up in the first place (low interest rates) is going away, stock price deflation is occurring at a relatively slow pace.

Nevertheless, you can expect it to continue. The self-proclaimed “monkeys,” or devoted fans of the stock, continue to make their outings. Without this pool of investors, value the action on factors outside the fundamentals? Investors who value stocks based on proven methods are slowly regaining control. Over time, it will fall to its fair value.

AMC Stock and the end of Meme Mania

It took a while, but the phenomenon that sent this and other actions “to the moon” may have finally come to an end. At least it’s taking Investors Business Dailywhich on January 24 declared it “game over for meme stocks”.

With the rise in rates, the fundamentals are again at the center of concerns. In turn, we’ve reached the end of the line for the absurd valuations seen with AMC stocks, GME stocks, and other meme games once considered “unsinkable.” The downward pressure of this led to many dedicated fans of both names rapidly losing their “diamond hands”, throwing in the towel in a wave of panic selling.

Now that the meme mania is “over,” you might think AMC is about to hit rock bottom. After all, despite the big sale, it’s still one of the most talked about titles on Reddit. It may be the sign of a last great gathering, right?

Maybe, maybe not. It may still be talked about a lot on r/WallStreetBets and other subreddits.

Still, looking at Reddit threads, it seems that many users who post new posts about it are just grabbing straws. For example, a post from a few days ago, where the poster asks about the chances of another short squeeze. Responses from members of the meme community are leaning towards the bearish side. With many in this sphere reading the writing on the wall, I think more meme stockpilers will come out rather than re-enter AMC stock from here on out.

On the way back to fair value

I will admit that the exodus from AMC “Apes” stock is not going to be instantaneous. However, as market trends move further and further out of its favor, those who still hold the proverbial bag will eventually decide to give up and move on.

So what’s the endgame for AMC stocks?

A price below $10 per share. How far below $10 per share is still up for debate. For one thing, it may not be in danger of fully falling back into the low single digits it traded for in January 2021, just before the meme stock trend emerged. Mainly, because unlike the “pre-meme era”, the company is relatively better capitalized, thanks to the secondary offerings it made last year.

On the other hand, these secondary offers resulted in a strong dilution of the shareholders. In the era of memes, its share count has grown from around 103.8 million to nearly 514 million. The cake is now cut into many more slices. Even if its earnings return to pre-virus levels (which in itself is debatable), that doesn’t mean the company will be worth the $7-10 per share it traded at the end of 2019.

With this, the fair value of AMC shares may not be $10.45 per share, which is the analysts’ average price target (according to the the wall street journal). Instead, it could be more in line with the $6 per share median price target expected by the sell side. Anyway, there is no point in cutting the hair. Whichever way you slice it, the stock has significant leeway to fall before it hits “low” territory.

The verdict: we’ve reached the end credits with the AMC saga

Higher interest rates were the final straw that broke the back of the meme stocks trend. First, speculation about good weather panicked. Now the “Ape” crowd has done it too. A few may stay there for the time being. Yet, as the chances of a rebound seem low, they will cash in as well.

We’ve reached the end credits with the AMC stock saga. There is no need to stick around.

At the date of publication, Thomas Niel had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to publishing guidelines. contributor Thomas Niel has been writing individual stock analysis for online publications since 2016.

More from Investor Place

The message slowly deflating expect AMC shares to fall back to single-digit prices appeared first on InvestorPlace.

interest rate

About Chris McCarter

Check Also

PIDE publishes a report on the 23rd IMF program for Pakistan

Islamabad, Sept. 25: /DNA/ – The International Monetary Fund (IMF) on September 1, 2022 released …