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The commercial frenzy that has propelled shares of AMC Entertainment Corp. to over 600% since the start of the year may have saved the cinema operator from bankruptcy, but the company still faces formidable challenges. after being hammered by the coronavirus pandemic.
AMC AMC,
is one of many stocks that were swept away during the short stock squeeze in video game retailer GameStop, which has skyrocketed over 1,600% in the past two weeks thanks to investor support on the WallStreetBets bulletin board from Reddit.
Those same investors are now flocking to today’s Reddit thread to make AMC the next GameStop GME,
to create a short squeeze that “will take him to the moon”, telling others to “buy and hold and not sell”.
Like other names caught up in this speculative frenzy, AMC had a high level of short-term interest as a percentage of the free float, which stood at around 69% according to the latest data, although a stock sell-off on Monday will reduce this percentage.
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The title of the world’s largest cinema chain climbed 250% on Wednesday, making it the biggest winner on major US stock exchanges. With volume climbing to over a billion shares, the stock was also the most actively traded of the day, although there was no new news motivating the move.
AMC has just seen a year in which many of its theaters were either locked out or operating at limited capacity and the major studios refrained from releasing new blockbusters. The outlook for 2021 is not much better, according to Eric Schiffer, managing director and president of Patriarch Organization and Reputation Management Consultants, and restructuring expert.
See also: GameStop, AMC trading is now limited at TD Ameritrade, Schwab
“Most people wouldn’t want to get into an indoor space for hours on end when there are variants (of the coronavirus-disease COVID-19) that vaccines can’t even inoculate,” Schiffer said. “The viability of the company before the stock market inflation did not change the calculation. If they survive, it won’t be the same. It will take years for them to find their place. ”
AMC took advantage of the sharp rise in its share price by opportunistically exploiting the equity and debt markets, raising an additional $ 917 million this week, which chief executive Adam Aron described as the sun is shining on AMC.
“I have 917 million reasons to be a smiling man,” Aron told MKM analyst Mike Hickey. “That brings us into 2021. With any sort of partial recovery in the film industry, that will take us until 2021. Impending bankruptcy is completely irrelevant. We believe we have the lead we need to get through this pandemic. “
Mike O’Rourke, chief market strategist at JonesTrading, noted this week that AMC’s market capitalization of $ 5.6 billion is almost double what it was before the pandemic. At the same time, its number of shares rose to 337 million from 58 million in October.
“Management deserves credit for opportunistically taking advantage of the environment to muster the resources needed to avoid bankruptcy,” he wrote.
AMC did not respond to requests for comment by email and phone. The Securities and Exchange Commission declined to comment. GameStop did not respond to a request for comment.
Schiffer said the company still has to pay its bills and manage its network of 1,000 theaters and 11,000 screens around the world. The company posted a loss of nearly $ 1 billion in the third quarter, as revenue fell to $ 119.5 million from $ 1.317 billion the year before. Its loss per share was about double what Wall Street expected, as reopening efforts were choppy at best.
So, is this group of Reddit investors backing the wrong horse?
“This is certainly not rational, these are the markets of a cold madness era, fed by the Fed,” Schiffer said. “Investors are looking for yields because rates are so low… you’re going to see times that seem wacky… and AMC is grossly overvalued due to an Internet-fueled shorts raiding and these aggressive gang-acting traders…. It’s the power of the Internet, ”he said.
AMC’s frantic trading may have had an unintended effect on the shares of a similar sounding company, AMC Networks AMCX,
the cable network behind hits like “Mad Men” and “The Walking Dead”. The stock, which trades under the symbol “AMCX”, lost 16% on Wednesday, while remaining up 129% in the past three months.
AMC Networks also has a high percentage of short-term free float interest, at about 60%, according to FactSet.
AMC Networks has had no recent news other than plans to issue $ 1 billion in bonds to replace more expensive debt with cheaper debt.
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