Market analysts warn against meme-stock 'gambling,' as AMC's stock price remains decoupled from fundamentals

• Market analysts said it's hard to predict when surges in AMC's stock price will come to a halt.
• "It is anyone's guess how much larger this bubble can grow," one analyst said.
• AMC shares whipsawed Thursday after a record surge Wednesday that nearly doubled the stock price.

The rally in shares of AMC Entertainment, fueled by an army of retail traders, could be at an end - or not.

The world's largest movie theater chain nearly doubled in value in a single day of trading Wednesday, adding to gains from the day and week prior, as retail investors - pooled together on sites like Reddit and Twitter - poured into the stock.

The price then whipsawed from red to green to red again Thursday after AMC announced a share sale, which initially caused the stock to plummet. The decline, one analyst said, was "to be expected."

"The bigger it goes, the farther it's going to fall," said David Trainer, chief executive officer of investment research firm New Constructs.

Market analysts weighed in Thursday on the unprecedented gains in AMC that helped drive a rally in a group of meme stocks this week. The analysts said the surge in AMC's stock price was detached from the reality of the company's value, but when that rally will come to a halt is a gamble.

"The retail force behind this movement is still strong, so it is anyone's guess how much larger this bubble can grow," said Edward Moya, senior market analyst at OANDA.

Meme stock trading, he said, "is just gambling. You could easily see this come crashing in minutes time."

Trying to apply logic to AMC's share price is "futile," said David Jones, chief market strategist at European trading and investing platform Capital.com.

"Who knows when the music stops?" he said. "Just don't expect to be able to call the top in this one. We may have already seen it, but then again perhaps it doubles in price once more."

The current trading enviornment can't last forever, Moya said, predicting that meme stocks such as AMC would give up a lot of their gains by the end of the week.

Some retail-trader favorites have already begun to erase gains made earlier in the week. Bed Bath & Beyond, GameStop, and Beyond Meat all declined Thursday. But some meme stocks, like Tilray, BlackBerry, and Workhorse continued increasing in value.

AMC's actual value, the analysts said, is far detached from where it's trading.

"It's hard to justify an equity valuation above $0," Trainer said, citing the company's debt load, weak earnings, and share dilution.

Moya said the stock price will likely settle below the $20 mark it surpassed last week. "The overall fundamentals are really going to hamper this stock," he said.

But, the analysts said, the retail traders don't care about the fundamentals of the company, which has flirted with bankruptcy in the past and struggled amid the COVID-19 pandemic as movie theaters shuttered and people opted to stay at home to watch new films.

"They call each other 'apes.'" Trainer said. "They flaunt the fact that they don't care about fundamentals."