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National CineMedia (NCMI) Stock Rallied After AMC Acquired a Stake

Simon Mugo trader
Updated 18 May 2022

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Key points:

  • The National CineMedia stock price rallied 20% on AMC's new stake.
  • The movie advertising company looks like an excellent investment for AMC.
  • AMC has struggled to find suitable investments despite massive cash.

The National CineMedia, Inc. (NASDAQ: NCMI) stock price rallied 18% premarket after AMC Entertainment acquired a 6.8% stake in the movie advertising company. The stake does not allow for activism, indicating that AMC does not want to take control of NCMI but wants to profit from its business.

Also read: The Best Undervalued Stocks To Watch in 2022.

National CineMedia is a movie company that many might not have heard of since it does not own any movie theatres. However, you must have interacted with the company’s services if you have ever been to a movie theatre.

Investors familiar with AMC Entertainment will know that it used to own a stake in National CineMedia but had to sell it in 2018 as part of the requirements for acquiring Carmike Cinemas Inc. It appears regulators are now okay with AMC owning a stake in CNMI.

NCMI provides advertising services to movie theatres and is behind many of the ads you see in cinema lobbies across America. AMC Entertainment invested via its wholly-owned subsidiary known as American Multi-Cinema.

The cinema advertising company did well in Q1 2022. Still, it lowered its forecast for the next quarter due to the problematic scatter ad market in the quarter as advertisers remained unsure about movie attendance.

Analysts at B. Riley lowered their price target on National CineMedia to $4 from $5, citing that its revenues were not guaranteed and could be lower than expected depending on external factors such as Covid-19 policies.

AMC Entertainment is flush with cash after raising funds during last year’s meme craze rally. However, it has struggled to find suitable investments, as evidenced by its stake in Hycroft Mining.

Therefore, AMC investors will be happy to see that the movie theatre operator found a good investment within an industry that it is very familiar with, unlike Hycroft Mining, which is divorced from AMC’s core business.

National CineMedia stock price.

National CineMedia share price 18-05-2022
Source: Tradingview

National CineMedia stock was set to open 20% higher, trading at $1.74 after rising from Tuesday’s closing price of $1.45.

Simon has over six years of professional trading experience across FX, commodities and equities. He has a strong passion for financial markets and is particularly focused on price action trading