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Cineplex Stock: The Next Short Squeeze?

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The investing world has been enamored with the activity surrounding GameStop stock over the past week. A social media blitz, originating on Reddit, has sparked a huge run for shares in the video game retailer. That was not the only stock to benefit, at least briefly, from the populist revolt in the markets. AMC Entertainment, the largest cinema operator in the United States, saw its shares surge in trading yesterday. It is also one of the most shorted stocks in North America. Cineplex (TSX:CGX) has been similarly maligned due to the COVID-19 pandemic. Indeed, theatres have barely been able to operate for nearly a year now.

Could Cineplex stock benefit from the same conditions that have boosted AMC stock? Let’s dive in.

What’s up with AMC Entertainment in the United States?

Like Cineplex, it was not the COVID-19 pandemic that triggered AMC stock’s fall from glory; that merely exacerbated an existing trend. Shares of AMC began their steady descent in early 2017. Investors have cooled on movie theatre companies as the industry has found itself on the wrong side of history. Cinemas have become increasingly reliant on blockbusters, while streaming services continue to poach consumers hungry for home entertainment options.

GameStop attracted attention due to its seemingly doomed position, especially in the pandemic. Indeed, this was the impetus for the coup against short sellers that has culminated in early 2021. AMC has also attracted huge interest from short sellers. However, they have seemingly seized the upper hand in late morning trading on January 28. AMC stock was down over 50%, dropping below the US$10 mark.

Could Cineplex stock stage a similar rally?

In March 2020, Hindenburg Research tweeted that it was short on Cineplex stock. It accurately predicted that the ongoing acquisition by Cineworld would fall apart due to broader pressures as the pandemic erupted around the world. Moreover, it predicted continued film delays after the announcement that the next installment in the James Bond franchise would be pushed back. Hindenburg Research was responsible for almost half of the 16 sell recommendations issued by activist short sellers in 2020.

Shares of Cineplex were down 8% in late morning trading at the time of this writing. However, its stock has had a strong start to 2021.

Cineplex has not attracted near the attention of the other “meme stocks” in the past week. Moreover, stocks that include BlackBerry, Nokia, and AMC are being pummelled in trading to start the day. The populist revolt in the markets may have already been cut short. If investors are going to stash Cineplex stock, it should be on firmer ground that going with the crowd.

Should you buy or sell today?

This top Canadian movie theatre operator may not be the next short squeeze stock to benefit in this mania. I’ve been bearish on the stock for months due to the rough environment for the cinema industry. However, that does not mean that it can’t surprise us in 2021.

Unfortunately, movie theatres probably won’t be able to return to full operations by the end of 2021. Vaccine rollouts have disappointed in Canada. Moreover, there is growing concern over the spread of coronavirus variants. Cineplex may still attract those hoping it can stage a comeback in this hostile climate. However, I’m staying away from the stock right now.

Forget Cineplex and zero-in on this stock instead . . .

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Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool recommends BlackBerry and BlackBerry.

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