We recently compiled a list of the 10 best undervalued stocks to buy according to Reddit. In this article, we’ll take a look at how AMC Entertainment Holdings, Inc. (NYSE:AMC) ranks against other undervalued stocks. If you’re interested, you can read our recent article on the 10 best undervalued stocks to buy under $20.
Retail investors, who often discuss investments on platforms such as Reddit, have become a major market force in recent years. According to one report, retail inflows into the stock market averaged about $200 million between 2014 and 2019, reaching a peak of $730 million in 2015. This figure skyrocketed to $1.2 billion in 2020, with daily inflows reaching $1.48 billion in 2021. In the following years, inflows have hovered between $1 billion and $1.4 billion per day, driven by commission-free online trading platforms and government stimulus payments. The surge in investor inflows is also due to the pandemic, when low interest rates and the Federal Reserve’s bond purchases pumped a large amount of money into the U.S. financial system.
2024 is already shaping up to be a strong year for the U.S. stock market, driven by strong performance from technology stocks. Tom Lee, co-founder and head of research at Fundstrat Global Advisors, is bullish on the current fiscal year and expects the market to triple in size by the end of the decade.
Two major factors fueling Lee’s bullish outlook are the global labor shortage and the booming millennial population. He said millennials are the largest generation shaping the economy and stand to inherit a large legacy as the intergenerational wealth transfer of at least $80 trillion approaches. One report said that by 2030, millennials’ wealth will be five times what it is today. Moreover, the last two global labor shortages have led to huge spikes in technology stocks, and Lee expects the same to happen this time around. However, he also warned of risks that could undermine his optimistic outlook, such as AI backfiring, a global recession, or geopolitical instability.
This uncertainty about the stock market, coupled with stock volatility, makes it difficult for investors to determine the true value of the stocks they want to invest in. In May of this year, American billionaire hedge fund manager Bill Ackman discussed the current state of value investors and acknowledged that in the investment world, predicting the durability of stocks is much more difficult than building financial models. In response to a question about whether he would use AI for stock investment and financial market analysis, Ackman said that while AI platforms may help with decision-making in the short term, there is no guarantee that they will continue to work in the long term.
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Value investors buy stocks that they believe are valuable but whose share prices do not reflect their actual value, aiming to profit when the market corrects. By choosing the right stocks, investors can make big profits through stock price movements. One way to choose the right stocks is to follow what hedge funds are doing. Insider Monkey regularly highlights the top hedge fund stocks across industries every quarter, and you can stay informed by following our website and subscribing to our newsletter. One example is “Top 10 Aerospace and Defense Stocks to Buy Now.”
methodology
We looked at multiple threads on Reddit to identify the top undervalued stocks that are being talked about the most according to investors on the platform. After collecting the list of companies, we used a stock screener to confirm that these stocks are undervalued. We then sorted and listed the stocks in ascending order of how frequently they were mentioned as undervalued on Reddit. In cases where two or more stocks were tied on the metric, we ranked one stock higher than the others based on hedge fund sentiment towards the stock in question. For this purpose, we used Insider Monkey’s database of 920 hedge funds for the first quarter of 2024.
Why are we interested in hedge fund concentrated stocks? The reason is simple: our research shows that you can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small and large stocks each quarter, and has returned 275% since May 2014, beating the benchmark by 150 percentage points (more details here).
Audience of movie fans enjoying the latest movie experience inside movie theater.
AMC Entertainment Holdings (NYSE:AMC)
Investors on Reddit who think the stock is undervalued: 4
AMC Entertainment Holdings (NYSE: AMC) is one of the world’s largest theatrical exhibitors, with 950 theaters and over 10,000 screens as of March 2022. In Q1 2024, AMC Entertainment Holdings (NYSE: AMC) beat analysts’ expectations by 19% in EPS, posting -$0.62 per share during the quarter. This was a significant improvement from a loss of -$1.51 per share in Q1 2023. The company’s revenue also beat industry analysts’ expectations, coming in at $951.4 million.
AMC said its improved second-quarter revenue was mainly due to a strong increase in moviegoing in March compared to January and March. However, the company said that while it expects its second-quarter numbers to be better than the first three months of the year, they may be weaker compared to a year ago as industry strikes have delayed new movie releases. This is one of the reasons why some investors have bearish sentiment towards the company’s stock. Their other concern is that the company has $4.6 billion in debt, of which $2.8 billion is coming due soon. The company also faces stiff competition from on-demand streaming services. This, along with the fact that AMC is heavily dependent on the rise of meme stocks, is not a good prospect in the long run.
Bulls say otherwise. They say AMC Entertainment Holdings (NYSE: AMC) seems to be heading in the right direction, with losses per share declining substantially in recent years, from -$195.80 per share in 2020 to -$2.37 in 2023, and projected to be around -$1.26 per share this year. To improve margins, the company has closed 169 theaters in various regions since 2019 and simultaneously opened 60 new theaters in better locations. The EBITDA of the new theaters was about $100 million higher than the 169 theaters that were closed. As a result, the company’s P/E ratio has improved 72% since 2021, to -3.06 last year. CEO Adam Aron is confident the industry will finally recover from the effects of COVID-19, and expects the market to be “booming” in 2025 and 2026.
According to Reddit, the stock is one of the best undervalued stocks to buy right now, with a target price of $5.95 and an upside potential of 18.29%. Additionally, according to Insider Monkey, 17 hedge funds are bullish on the company.
Overall, AMC ranks 8th on our list of the cheapest stocks to buy according to Reddit. You can visit our list of the 10 cheapest stocks to buy according to Reddit to see other undervalued stocks that hedge funds are watching. While we acknowledge AMC’s potential as an investment, we believe AI stocks have greater potential to deliver higher returns in the short term. If you’re looking for AI stocks that are more promising than AMC but still trade for less than 5x their earnings, check out our report on the cheapest AI stocks.
Read next: Analyst sees new $25 billion ‘opportunity’ in NVIDIA, Jim Cramer recommended these 10 stocks in June.
Disclosures: None. This article was originally published on Insider Monkey.