Movie theater chain AMC Entertainment Holdings Inc. (AMC, Financial) was subject to fame when the so-called "meme stock" frenzy hit the tabloids in late 2020. The company's stock has been trading up after hours for reasons unrelated to the meme events in 2020, but it still is not a good idea to invest in the stock right now.
January window
The January window refers to the first week of January, when risky assets tend to outperform the market. The golden thread to this would be that asset managers usually sell their risky holdings to meet their required risk mandates during the Christmas period. It is thus needless to say that the same managers buy back into their risk-on assets in early January, so the magnitude of the buying causes price surges. The market has taken note of this pattern, which has caused broad-based speculation on most risky assets, including AMC Entertainment.
The correlation between AMC and GameStop
Another reason for AMC's surge is its correlation to GameStop Corp. (GME, Financial). The two companies were front and center in a surge that occurred in late 2020.
Source: Portfolio Visualizer.
GameStop announced this week that it had embarked on a non-fungible token project where customers can buy and sell their NFTs of video games. This signals that investors are acting irrationally and that a downward mean reversion is highly likely.
What to expect
I don't have much faith in AMC's stock for 2022 as it is massively overvalued. Relative to its five-year average, the price-sales ratio is 1.78 times higher. Furthermore, the company's enterprise value-sales ratio is trading at a premium to its five-year average, suggesting the company isn't operating as efficiently as it should be.
Although the stock will seemingly gain intra-day momentum from the previously mentioned events, it's still not on a momentum trend as it is trading below its 10-, 50-, 100- and 200-day moving averages. I firmly believe this surge will be short-lived, resulting in disappointment for many of the bulls out there.
Final thoughts
AMC isn't a stock with solid prospects. The correlation to GameStop may cause some upside, but this won't be sustainable as the market's liquidity isn't as strong as when the meme stock craze happened. The company is significantly overvalued with poor efficiency ratios; I'd thus add it to my underweight list at the moment.
