The commercial frenzy that propelled AMC Entertainment Corp. at more than 600% in the year so far it may have saved the cinema operator from bankruptcy, but the company still faces formidable challenges after being hit by the coronavirus pandemic.
AMC AMC,
is one of many stocks that have been swept away in the short tightening of the shares of video game retailer GameStop, which has soared more than 1,600% in the past two weeks amid investor support on Reddit’s WallStreetBets message board.
These same investors are now asking each other on today’s Reddit topic to make AMC the next GameStop GME,
to create a short squeeze that will “take you to the moon”, telling others to “buy and keep and not sell”.
Like the other names caught in this speculative frenzy, AMC had a high level of interest sold as a percentage of the float, which was around 69% according to the latest data, although a share sale on Monday reduces that percentage. .
Don’t miss: It’s not just GameStop: here are some of the other heavily sold stocks
Shares in the world’s largest cinema chain soared an additional 250% on Wednesday, making it the highest value on major US exchanges. With the volume rising to more than 1 billion shares, the stock was also the most traded on the day, although there was no new news driving the change.
AMC has just ended a year during which many of its cinemas have been closed or operating with limited capacity and the major studios have refrained from launching new box office hits. The prospects for 2021 are not much better, according to Eric Schiffer, chief executive and president of the Patriarch Organization and Reputation Management Consultants, and a restructuring expert.
See too: GameStop, AMC trading is now restricted to TD Ameritrade, Schwab
“Most people would not want to be in an enclosed space for hours when there are variants (of the coronavirus disease COVID-19) against which vaccines may not even inoculate,” said Schiffer. “The viability of the business before the stock market inflation did not change the calculation. If they survive, it won’t be the same deal. It will take years for them to recover from where they were. ”
AMC took advantage of the sharp rise in its share price by opportunistically exploring the stock and debt markets, raising another $ 917 million this week, which Chief Executive Adam Aron described as the sun shining at AMC.
“I have 917 million reasons to be a smiling man,” Aron told MKM analyst Mike Hickey. “It takes us to 2021. With any kind of partial recovery in the film industry, it will take us to 2021. Impending bankruptcy is completely out of the question. We believe that we have the clue we need to overcome 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 stock count rose from 58 million in October to 337 million.
“The administration deserves credit for opportunistically taking advantage of the environment to gather the necessary resources to avoid bankruptcy,” he wrote.
AMC did not respond to requests for comment by email and telephone. The Securities and Exchange Commission declined to comment. GameStop did not respond to a request for comment.
Schiffer said the company still had to pay its bills and manage its network of 1,000 cinemas and 11,000 screens worldwide. The company posted a loss of nearly $ 1 billion in the third quarter, as revenue decreased to $ 119.5 million, from $ 1.317 billion in the same period last year. Its loss per share was about twice what Wall Street had expected, since reopening efforts were agitated at best.
So, this group of Reddit investors is betting on the wrong horse?
“This is certainly not rational, these are markets for crazy and cold times, powered by the Fed,” said Schiffer. “Investors are looking for returns because rates are so low … you will see periods that look crazy … and AMC is grossly overvalued because of a plunder of short positions that is fueled by the internet and these aggressive traders acting in bundles … This is the power of the internet, ”he said.
The frantic trading at AMC may have had an unwanted effect on the shares of a similar sound company, AMC Networks AMCX,
the cable network behind hits like “Mad Men” and “The Walking Dead”. These shares, which are traded under the ticker “AMCX”, fell 16% on Wednesday, while remaining up 129% in the past three months.
AMC Networks also has a high percentage of its share sold as a percentage of the float, at around 60%, according to FactSet.
AMC Networks has had no recent news beyond its intention to issue $ 1 billion in bonds to replace more expensive debt with cheaper debt.
Don’t miss: Stop laughing about GameStop’s action craze – no, seriously