The trading frenzy that the shares of AMC Entertainment Corp. in the past year by more than 600% may have saved the cinema operator from bankruptcy, but the company is still facing formidable challenges after being hammered by the coronavirus pandemic.
AMC AMC,
is one of many stocks swept up in the short squeeze in shares of video game retailer GameStop, which is up more than 1,600% in the past two weeks with investor backing on Reddit’s WallStreetBets message board.
Those same investors are now urging each other in today’s Reddit thread to make AMC the next GameStop GME,
to create a short squeeze that ‘takes it to the moon’, telling others to ‘buy and hold and not sell’.
Like the other names caught up in this speculative frenzy, AMC has had high levels of short-term interest rates as a percentage of the float, which was around 69% according to the latest data, although a stock sale on Monday will lower that percentage.
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The share of the world’s largest movie theater chain rose another 250% on Wednesday, making it the biggest gain on the major US stock exchanges. With volume increasing to more than 1 billion shares, the stock was also the most actively traded on the day, although there was no new news driving the move.
AMC has just seen a year where many of its theaters were closed or operating at limited capacity and major studios were not releasing new blockbusters. The outlook for 2021 is not much better, said Eric Schiffer, CEO and chairman of Patriarch Organization and Reputation Management Consultants and restructuring expert.
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“Most people wouldn’t want to put themselves in an indoor room for hours on end if there are variants (of the coronavirus disease COVID-19) that vaccines may not even inoculate against,” Schiffer said. “The viability of the company prior to stock market inflation has not changed calculus. If they survive, it won’t be the same. It will be years before they are restored to where they were. ”
AMC took advantage of the stock price surge by taking opportunistic use of the stock and debt markets to raise an additional $ 917 million this week, which Chief Executive Adam Aron described as the sun shining on AMC.
“I have 917 million reasons to be a smiling man,” Aron told MKM analyst Mike Hickey. “It takes us deep into 2021. With any kind of partial recovery of the movie theater industry, we’ll get all the way through 2021. An impending bankruptcy has been completely dismissed. We think we have the runway we need to weather this pandemic. “
Mike O’Rourke, chief market strategist at JonesTrading, noted this week that AMC’s $ 5.6 billion market capitalization is nearly double what it was before the pandemic. At the same time, the number of shares has increased from 58 million in October to 337 million.
“Management deserves credit for opportunistically exploiting the environment to gather the resources to avoid bankruptcy,” he wrote.
AMC did not respond to requests for comment by email and telephone. The Securities and Exchange Commission declined 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 worldwide. The company recorded a loss of nearly $ 1 billion in the third quarter as sales fell to $ 119.5 million from $ 1.317 billion in the same period a year earlier. Loss per share was about double what Wall Street expected as reopening efforts were choppy at best.
So, is this Reddit investor group backing the wrong horse?
“This is by no means rational, these are the markets of stone-cold, crazy times, driven by the Fed,” said Schiffer. “Investors hunt for returns because interest rates are so low … you will see periods that seem crazy … and AMC is grossly overvalued because of a marauding shorts powered by the Internet and these aggressive parcel traders … This is the power of the Internet, ”he said.
The frantic trading in AMC 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’. That stock, which trades under the ticker “AMCX,” fell 16% Wednesday, while it has continued to rise 129% for the past three months.
AMC Networks also has a high percentage of short-term interest as a percentage of the float, at around 60%, according to FactSet.
AMC Networks hasn’t had any new news lately, other than its intention to issue $ 1 billion in bonds to replace more expensive debt with cheaper debt.
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