Why is the AMC Entertainment stock seeing an increase in short interest?

AMC Entertainment [AMC] stock, along with Blackstone [BX], GameStop [GME] and others, feature at the top of a list compiled by data analytics firm S3 Partners, who identify companies that short sellers might be tempted to cash in on.

AMC Entertainment and GameStop were among the top 10 stocks picked out by S3, but what’s the methodology behind its analysis? How has AMC’s stock price performed, and what do analysts expect going forward?

How is the AMC stock performing?

Shares in the Odeon cinema owner slid 1.8% on 27 September to close at $39.29, following the previous week’s 9.5% fall and a monthly decline of 9.3%.

A few weeks of underperformance, however, haven't wiped out the stellar gains made so far this year. The AMC stock is up 290.7% over the past six months and a whopping 1,890.5% higher so far in 2021, as of 27 September.

Why is AMC the most shorted stock?

According to S3 Partners, the top 10 short profit percentage ‘winners’ – those stocks calculated as the main stocks short-sellers may what to cash in on – are: AMC at 9.2%, followed by Blackstone with 7.5%, Apollo Global Management [APO] with 7.2%, Palantir Technologies [PLTR] with 7.1%, Unity Software [U] with 6.8%, Pinduoduo [PDD] with 6.7%, GameStop with 6.4%, Bilibili [BILI] (6.41%), Nio [NIO] with 6.4% and DraftKings [DKNG] with 5.8%, reports Simply Wall Street.

AMC had 18.69% of its shares shorted on 31 August, according to MarketBeat, which is high. The concern for short sellers is that, at these elevated levels, AMC stock could be at risk of featuring in another coordinated short squeeze. On social trading site Reddit, AMC stock-related forums have over 500,000 participants, report TheStreet – more followers than any other stock across the platform.

Short interest in GameStop as a percentage of the company’s float declined to 12.3% in August, according to MarketBeat, drastically lower than a high level of 141% in January, according to S3 Partners. The number of GameStop shares being shorted was at its peak before retail traders combined to ‘short squeeze’ the stock, ultimately sending its share price soaring.

The method behind S3 Partners’ analysis

S3 Partners calculates its own daily short interest numbers for more than 50,000 global securities, using a wealth of data from prime brokers, swap counterparties, stock exchanges, and broker feeds. Its models use dynamically weighted inputs based on security and market characteristics, including volatility and liquidity. S3 has also created a host of analytics and other statistics around short sales, including the ‘squeeze score’, which ranks the risk of a company getting caught in a short squeeze.

The company focuses on the overall amount of short interest, rather than short interest as a percentage of float, believing it’s a key misconception that short interest as a percentage of a float is more meaningful than absolute short interest. And best of all for its clients, S3 Partners calculates that its data is within 10% of the actual figures 90% of the time.

What’s next for the AMC stock?

Analysts covering the stock still believe the share price is outstripping the fundamentals, which has led them to forecast significant downside. According to MarketBeat, the average price target is $5.58, representing a downside of 85.8% versus its 27 September’s close at $39.29. AMC stock has a slightly lower average price target at $5.44 with the Wall Street Journal, representing a downside potential of 86.1%. AMC has four holds and five sell ratings, according to The Wall Street Journal, for a consensus underweight rating.

While analysts foresee the downside potential of the AMC stock price, retail traders, as well as S3 Partners’ own data, tell us there are several factors at play as investors consider their next move on AMC stock.