Investors have had their eyes glued to AMC Entertainment Holdings (AMC 0.80%) stock over the past few months as the stock price has grown an outrageous almost 30-fold year to date, skyrocketing from $2 at the beginning of 2021. It has all the exciting suspense you'd usually see on an AMC theater screen, but the excitement is not connected to its business.
The premise of the drama is that AMC stock is heavily shorted, which means a significant percentage of shares are "sold" by commercial investors. These short-sellers expect to buy the stock back when the share price tanks, pocketing the price difference. Retail investors have been pushing the price up instead, forcing a series of short squeezes for the investors. But it's more than that because many investors see real potential for the company to get back to growth as the economy reopens. This week there was evidence of that as the anticipated film F9 opened in the U.S. exclusively in theaters, reeling in $70 million in ticket sales over last weekend.
But if you're looking to buy a high-growth stock without the suspense, consider streaming company Roku (ROKU -3.13%).
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Two ways to make money
Roku is different from other streaming companies because it has both a device business and a streaming network. And both are demonstrating high performance, as well as high potential.
Sales grew 79% in the first quarter to just over $500 million, and the company posted a third consecutive "surprise" profit of $76 million.
Player revenue, which includes sales of the company's streaming devices, increased by 22%. But platform revenue, which comprises ad sales from the company's free streaming networks, grew 101%.
This is where the company's biggest growth opportunities are. Advertisers are moving their money over to streaming as viewers continue to "cut the cord" and switch to streaming from traditional television. Roku has deals with most streaming networks to stream their channels on Roku devices and use their content on its own channel. Roku recently announced that it is launching its own original content to compete with the bigger guns like Walt Disney and Netflix. It's planning to release nearly 50 pieces of content this year, and it already posted a record number of unique streamers in the two-week period after launching Roku Originals.
Although it seems like every network is launching its own streaming service, there are only a few at the top. Although Roku is focused on its free streaming model right now, the market is wide open, and the company is demonstrating its ability to pivot and try new ventures. Streaming is still in its infancy, and Roku is a main player in this new field.
The only reason investors might want to be cautious about buying Roku stock is its valuation. Roku's success is no secret and its price skyrocketed last year, gaining nearly 300%. Shares are now trading at almost 1,100 times forward-one-year earnings. That's a hefty price tag, even for a growth stock, and it may take time to grow into that valuation.
Image source: Getty Images.
Making it through to the end of the tunnel
It's been a rough ride for AMC with closed theaters, but it has survived thanks in part to excited investors who are buying new stock and loading the company up with cash.
It's not out of the woods yet, though. Movie-going is coming back, but it's not clear if it will get to pre-pandemic levels any time soon, if at all.
As for AMC stock, so much growth is baked into the price that it might be overdone. At current prices, investors are paying a high premium on future growth.
AMC and Roku stocks are both trading at super-high valuations, but only one of them has a clear path toward growth, and that's Roku.
