The trade frenzy that has boosted AMC Entertainment Corp’s shares by more than 600% so far this year may have saved the cinema operator from bankruptcy, but the company is still facing huge challenges after being hit by the coronavirus pandemic. .
AMC AMC,
is one of the many stocks whipped up in the short press of shares of video game retailer GameStop, which has soared by more than 1,600% over the past two plus weeks amid investor support on Reddit’s WallStreetBets message board .
The same investors are appealing to each other in today’s Reddit thread to make AMC the next GameStop GME,
to create a short print that will “take it to the moon” and others will say, “buy and hold and not sell.”
Like the other names caught up in this speculative frenzy, AMC has a high level of short-term interest as a percentage of the float, which according to the latest data stood at around 69%, although a share sale on Monday will leave the percentage daal.
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The share of the world’s largest cinema chain rose by another 250% on Wednesday, making it the largest gain on the US stock market. With a ballooning volume of more than 1 billion shares, the stock was also the most actively traded on the day, although there was no fresh news.
AMC had just experienced a year in which many of its theaters were in a closed or limited capacity, and large studios refrained from releasing new blockbusters. According to Eric Schiffer, CEO and chairman of Patriarch Organization and Reputation Management Consultants, and a restructuring expert, the outlook for 2021 is not much better.
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“Most people do not want to put themselves in an indoor space for hours if there are variants (of the coronavirus disease COVID-19) against which vaccines cannot even be vaccinated,” Schiffer said. “The viability of the business before the inflation of the share in the market did not change the calculation. If they do survive, it will not be the same business. It will take years before they recover where they were. ”
AMC took advantage of the sharp rise in its share price by opportunistically exploiting the stock market and debt markets and this week raised another $ 917 million, which CEO Adam Aron described as the sun shining on AMC.
“I have 917 million reasons to be a smiling man,” Aron told Mike Hickey, an analyst at MKM. ‘It gets us deep into 2021. With any form of partial recovery from the movie theater industry, it will take us to 2021. The looming bankruptcy is completely off the table. We believe we have the runway 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 share climbed to 337 million from 58 million in October.
“Management deserves credit for opportunistically exploiting the environment to raise funds to stave off bankruptcy,” he wrote.
AMC did not respond to emails and phone requests for comment. The Securities and Exchange Commission declined to comment. GameStop did not respond to a request for comment.
Schiffer said the company still needs to pay its bills and manage its network of 1,000 theaters and 11,000 screens worldwide. The company posted a loss of nearly $ 1 billion in the third quarter as revenue declined to $ 119.5 million from $ 1.317 billion in the previous year. The loss per share was about twice as much as Wall Street expected, as the reopening of the efforts was bad at best.
So, does this Reddit investor group support the wrong horse?
“It’s definitely not rational, it’s the markets of freezing cold times, driven by the Fed,” Schiffer said. ‘Investors are chasing returns because rates are so low … you will see periods that look ugly … and AMC is severely overvalued because of shorts driven by the internet, and these aggressive traders in packs … That is the power of the internet, ”he said.
The furious trade in AMC may have had an unintended effect on the share of a similar audio company, AMC Networks AMCX,
the cable network behind hits, including ‘Mad Men’ and ‘The Walking Dead’. The stock, which trades under the ticker “AMCX”, fell 16% on Wednesday, while rising 129% over the past three months.
According to FactSet, AMC Networks also has a higher percentage of short-term interest than a percentage of the float, with about 60%.
AMC Networks had no recent news, other than the intention to issue $ 1 billion worth of bonds to replace more expensive debt with cheaper debt.
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