The trading frenzy that has propelled the shares of AMC Entertainment Corp. up more than 600% in the year to date 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, +260.89% is one of the many stocks that have been swept up in the short squeeze in shares of videogame retailer GameStop, which has skyrocketed more than 1,600% in the past two-plus weeks amid support from investors on Reddit’s WallStreetBets message board.
Those same investors are now urging one another in today’s Reddit thread to make AMC the next GameStop GME, +117.93%, to create a short squeeze that will “take 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 a high level of short interest as a percentage of the float, which stood at about 69% according to latest data, although a share sale on Monday will take that percentage down.
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The stock of the world’s biggest cinema chain, soared another 250% on Wednesday, making it the biggest gainer on major U.S. exchanges. With volume ballooning to more than 1 billion shares, the stock was also the most actively traded on the day, even though there was no fresh news driving the move.
AMC has just seen out a year during which many of its theaters were in lockdown or operating at limited capacity and major studios refrained from releasing new blockbusters. The outlook for 2021 is not much better, according to Eric Schiffer, chief executive and chairman of Patriarch Organization and Reputation Management Consultants, and a restructuring expert.
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“Most people would not want to put themselves in an indoor space for hours when there are variants (of the coronavirus-illness COVID-19) that vaccines may not even inoculate against,” said Schiffer. “The viability of the business prior to the market’s inflation of the stock hasn’t altered the calculus. If they do survive, it won’t be the same business. It will take years for them to recover back to where they were.”
AMC took advantage of the steep rise in its share price by opportunistically tapping equity and debt markets, raising another $917 million this week that 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 gets us deep into 2021. With any kind of partial recovery of the movie theater industry, this will get us all the way through 2021. Imminent 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 nearly double what it was prior to the pandemic. At the same time, its share count has climbed to 337 million from 58 million in October.
“Management deserves credit for opportunistically taking advantage of the environment to gather the resources to stave off bankruptcy,” he wrote.
AMC did not respond to email and phone requests for comment. The Securities and Exchange Commission declined comment. GameStop hasn’t responded 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 an almost $1 billion loss in the third quarter as revenue dwindled to $119.5 million from $1.317 billion in the year-earlier period. Its loss per share was about double what Wall Street was expecting, as reopening efforts were choppy at best.
So, is this Reddit investor group backing the wrong horse?
“This is certainly not rational, there are the markets of stone cold crazy times, powered by the Fed,” said Schiffer. “Investors are chasing returns because rates are so low…you’re going to see periods that appear wacky…and AMC is grossly overvalued because of a marauding of shorts that’s powered by the internet and these aggressive traders acting in packs…. This is the power of the internet,” he said.
The frantic trading in AMC may have had an unintended effect on the stock of a similar-sounding company AMC Networks AMCX, -17.64%, the cable network behind hits including “Mad Men” and “The Walking Dead.” That stock, which trades under the ticker “AMCX,” was down 16% on Wednesday, while remaining up 129% in the last three months.
AMC Networks also has high percentage of short interest as a percentage of the float, at about 60%, according to FactSet.
AMC Networks has had no fresh news of late apart from its intention to issue $1 billion of bonds to replace more expensive debt with cheaper debt.
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