AMC stocks fall 33% after filing second share issue in three days
AMC’s stock is worth $0 per share, given its weak earnings, dilution from recent stock offerings and mountain of debt, says investment analyst
AMC Entertainment shares were down by a third on Thursday after the company took advantage of a record stock price with its second share issue in three days while saying it did not know how long its stellar run would last and warning investors of the risks involved.
AMC's shares traded 33.4% lower on Thursday at $41.10 after the company said it agreed to sell up to 11.55-million of its shares from time to time in an at-the-market programme. A wave of buying from retail investors had helped AMC’s share price nearly double to a record close of $62.55 in the prior session.
“Our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last,” the cinema chain operator said in a statement.
A number of Wall Street analysts have said AMC is already overvalued and many institutional traders have said they are steering clear of the stock, a popular destination for retail traders congregating on Reddit’s WallStreetBets and other forums.
“Under the circumstances, we caution you against investing in our class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment,” AMC said, echoing a warning from regulators earlier in 2021 on the potential pitfalls of such stocks.
Wednesday’s record price was 30 times the level AMC traded at the end of 2020 and came a day after it issued 8.5-million shares to Mudrick Capital, which the hedge fund flipped at a profit.
“You've got the company currently selling stocks through the rally because these prices are not going to last forever, so why not use this opportunity to shore up your balance sheet and raise some cash,” said Dennis Dick, a trader at Bright Trading in Las Vegas.
AMC said in January it had secured almost $1bn in new funding and cash since mid-December, and it has continued with further issues. The number of AMC shares in issue has hit nearly 500-million from just 100-million at the end of 2020.
AMC CEO Adam Aron on Wednesday offered even the smallest shareholder a free large popcorn if they signed up for a newsletter.
The rise of streaming and competition facing movie theatres meant the US economy’s reopening is unlikely to boost AMC’s performance, said David Trainer, CEO of investment research firm New Constructs.
“AMC’s business was trending in the wrong direction even prior to the Covid-19 pandemic.... We think AMC’s stock is worth $0 per share, given its weak earnings, dilution from recent stock offerings and mountain of debt,” Trainer said.
AMC shares had continued to gain as they were hyped online with calls for small investors to buy shares and call options on certain “meme stocks”.
Such investors care little about a business’s fundamentals and have targeted stocks with high short interest to force bearish investors to unwind their bets at a loss.
The breathtaking gains in AMC have hurt those betting against AMC shares, though some analysts say bearish investors have mostly held firm.
Short interest in AMC stood at 89.98-million shares late on Wednesday, compared with 90.87-million at Tuesday’s close, according to S3 Partners. Bearish investors were down $5.2bn for the year by Wednesday, the firm’s data showed.
Meanwhile, AMC’s bonds tell a different story to its stocks.
While prices have recovered due to the company’s renewed access to capital, they remain in troubled territory. For example, a $600m 5.75% bond due 2025 was trading at 80c on the dollar on Thursday.
Of other big recent “meme” plays, BlackBerry’s US shares dipped 2%, while GameStop was down 11% and Koss shed 27%.
A short squeeze in GameStop in January triggered regulatory concern about the stability of brokers, with the National Securities Clearing Corporation later applying to tighten rules on the deposits brokers are required to post ahead of stock options expiry.
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