Shares in AMC Entertainment (AMC:US) have climbed spectacularly over the last month, rising from around $10 to $50. The stock – which has been targeted by Reddit (WallStreetBets) traders – appears to have experienced a combination of a short squeeze and a ‘gamma squeeze.’ The latter occurs when options traders buy large quantities of call options on a stock, forcing market makers to buy the stock in order to hedge their risk exposure.

In this report, we are going to take a look at both the short selling data on AMC, as well as the insider transaction data. This data could provide some insights into the outlook for AMC stock from here.

AMC: Short Selling Data

When we last covered AMC, on 21 May, the stock had short interest of 35.1%. At the time, 132.7 million AMC shares were on loan. Since then, short interest has fallen significantly. As of 9 June, the total number of shares on loan was 87.7 million. This equates to short interest of 23.2%. Our data shows that since 3 June, the number of transactions on the short side has fallen dramatically.

Since our last report, utilization has also decreased substantially from 96.02% to 82.35%. Utilization is the number of loaned shares divided by the available shares in the securities lending market, expressed as a percentage. Essentially, it’s a measure of demand for shares from short sellers. The fact that utilization has fallen from 96.02% to 82.35% tells us that demand for the stock on the short side is not as high as it was.

Short interest of 23.2% is still relatively high, however. With this level of short interest, there is a possibility that the stock could continue to experience a short squeeze. That said, the setup isn’t optimal for a prolonged short squeeze. That’s because AMC’s days-to-cover ratio is low at 0.30. A low days-to-cover ratio tells us that short sellers could easily and quickly cover their positions if the price of the stock was to suddenly rise.

Another short squeeze would also require further buying from retail investors. However, Vanda Research – which uses proprietary tools to track retail investor flows – believes that investor interest in AMC may have already peaked. On 4 June, Vanda said that after AMC warned investors on 3 June not to buy its stock unless they were prepared to incur the risk of “losing all or a substantial portion” of their investment, there was a major drop-off in retail buying.

Insider Transaction Data

Turning to the insider transaction data on AMC, it’s interesting to see that since the middle of May, a number of insiders at AMC have sold stock. Our data shows that in total, nine different insiders have offloaded stock since 14 May, selling around $11.6 million worth of shares.

Insiders often sell large amounts of company stock when they believe it’s overvalued. They don’t sell stock if they think it’s going higher. This insider selling activity at AMC suggests that those within the company see downside risk at present.

In relation to downside risk, it’s worth noting that, while the outlook for AMC Entertainment has improved recently, the average Wall Street price target for the stock is well below the current share price. At present, the average 12-month price target is just $5.25. That’s roughly 90% below AMC’s current share price. It’s also worth noting that AMC’s current market cap of $25 billion is around 33 times its market cap at the end of 2019 – when it generated record revenues of $5.5 billion for the year. These figures suggest that AMC is extremely overvalued at present.

“We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals.” – AMC Entertainment, 3 June 2021

AMC Stock: Insights

In conclusion, the data on AMC stock reveals some interesting insights. With short interest still relatively high, there is a possibility that the stock could continue to experience a short squeeze if retail investors continue buying.

However, anyone buying AMC stock now faces a considerable level of risk. The company has admitted that the current market cap is detached from the fundamentals, and insiders are offloading large amounts of stock, which is generally a bearish signal.

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