We recently compiled a list of the 10 Best Undervalued Stocks to Buy According to Reddit. In this article, we are going to take a look at where AMC Entertainment Holdings, Inc. (NYSE:AMC) stands against the other undervalued stocks. If interested, read our recent piece on the 10 Most Undervalued Stocks to Buy for Under $20.
Retail investors often discuss their investments on platforms such as Reddit and have become a major market force in recent years. According to a report, inflows from retail investors in the stock market between 2014 and 2019 averaged around $200 million, with a peak of $730 million in 2015. The figure spiked to $1.2 billion in 2020, with daily flows reaching $1.48 billion in 2021. Over the next couple of years, the value of inflows hovered between $1-1.4 billion per day, driven by commission-free online trading platforms and stimulus payments from the government. The surge in investor inflows is also owed to the pandemic, during which low interest rates and bond purchases by the Federal Reserve pumped heavy money into the American financial system.
The year 2024 has already been a healthy year for the American stock market, driven by a strong performance by technology stocks. Tom Lee, the co-founder and head of research at Fundstrat Global Advisors, is bullish on the ongoing fiscal year and anticipates the market to triple in size by the end of the decade.
The two major factors driving Lee’s bullish projection were the global labor shortage and a surge in the population of millennials. He mentions how millennials are the largest generation shaping the economy and are set to inherit big as we approach the generational wealth transfer of at least $80 trillion. According to a report, by 2030, millennials will have five times more wealth compared to what they have today. Moreover, the past two incidents of global labor shortage led to major spikes in technology stocks, and Lee is expecting the same again this time. However, he also warns of risks that could undermine his positive outlook, including AI backfiring, global recession, and geopolitical instability.
This uncertainty about the stock market, coupled with stocks’ volatility, makes it difficult for investors to ascertain the true value of the stock they want to invest in. American billionaire hedge fund manager, Bill Ackman, in May this year, discussed the current state of value investors and acknowledged that predicting the durability of a stock is far harder than building a financial model in the world of investment. Responding to a question about the use of AI to analyze stock investments and financial markets, Ackman stated that AI platforms might help in decision-making over the short run, but there is no guarantee that they would continue working over the long run.
Value investors purchase stocks they believe have a high value but their share prices do not reflect the stock’s actual worth, aiming to benefit when the market corrects itself. If the correct stocks are picked, it can lead to hefty returns for the investors through share price performance. One way of picking out the right stocks is noticing what the hedge funds are doing. Insider Monkey regularly covers top hedge fund stocks across industries for each quarter, and you can keep up with the information by following our website and subscribing to our newsletter. One such example is the 10 Best Aerospace and Defense Stocks to Buy Now.
Methodology
We went through several threads on Reddit to identify the most talked about top undervalued stocks according to investors on the platform. After gathering a list of companies, we went through a stock screener to verify that these stocks were undervalued. Then we sorted and listed the stocks in ascending order of how frequently they were mentioned on Reddit for being undervalued. In cases where two or more stocks were level on the metric, we outranked one over the other based on hedge fund sentiment about the stocks in question. Insider Monkey’s database of 920 hedge funds for Q1 2024 was used for that purpose.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An audience of moviegoers inside a theatre, savoring the latest cinematic experience.
AMC Entertainment Holdings, Inc. (NYSE:AMC)
Investors on Reddit that consider the stock undervalued: 4
AMC Entertainment Holdings, Inc. (NYSE:AMC) is one of the largest theatrical exhibition companies in the world, with 950 theatres and more than 10,000 screens as of March 2022. During the first quarter of 2024, AMC Entertainment Holdings, Inc. (NYSE:AMC) beat analyst expectations by 19% for EPS, having posted -$0.62 per share during the quarter, which was also a major improvement from a loss per share of -$1.51 during Q1 2023. The company’s revenue was also higher than forecasts by industry analysts, measured at $951.4 million.
According to AMC, the quarter’s revenue improvement was largely due to the significant growth in movie-going in March, compared to January and March. However, the company stated that while numbers for the second quarter are expected to be better than the first three months of the year, they are likely to be weaker compared to the previous year, as strikes in the industry delay the release of new movies. This is one of the reasons behind the bearish sentiment among some investors regarding the stock. Another cause of worry for them is that the company is $4.6 billion in debt, of which $2.8 billion is due for repayment soon. The company also faces fierce competition from on-demand streaming services. This is on top of the fact that AMC is heavily dependent on meme-stock rallies, which is not a good look in the long term.
The bullish opinion is otherwise. According to them, AMC Entertainment Holdings, Inc. (NYSE:AMC) appears to be headed on the right track, with its loss per share drastically declining over the last few years, from -$195.80 per share in 2020 to just -$2.37 in 2023, and is forecast to be around -$1.26 per share this year. To improve margins, the company has closed 169 theatres across different regions since 2019, and at the same time opened 60 new theatres in better locations. The new theatres had an EBITDA of around $100 million more than the 169 that closed. As a result, its P/E ratio has improved 72% since 2021 to equal -3.06 last year. CEO Adam Aron is confident about the industry finally recovering from the impact of COVID-19 and expects the market to be ‘roaring hot’ in 2025 and 2026.
It is one of the best undervalued stocks to buy now according to Reddit, with a share price target of $5.95, an upside of 18.29%. Moreover, 17 hedge funds are bullish about the company, according to Insider Monkey.
Overall AMC ranks 8th on our list of the best undervalued stocks to buy according to Reddit. You can visit 10 Best Undervalued Stocks to Buy According to Reddit to see the other undervalued stocks that are on hedge funds’ radar. While we acknowledge the potential of AMC as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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