- Daily Zen
AMC Entertainment shares are up about 2,500% in 2021 as the company has courted amateur investors since the Game Stop Short Squeeze in January.
It would be an understatement to say that AMC stock has seen some extraordinary days since the start of the year. When it set foot into the new year it was trading at just 2 a share; it has since soared more than 36-fold to new all-time highs this past week.
This run comes with a renewed sense of regulatory concerns. AMC Entertainment shares nosedived as much as 40%, then later recovered all of those losses before making a steep descend again. Shares in the company finished Thursday’s wild trading session down 18% at 51.34 after almost doubling in value the previous day.
AMC Entertainment has now decided to sell more than 11 million shares, and what’s surprising is that it has warned investors to proceed with caution should they choose to participate in the stock frenzy. The company included a warning to investors in Thursday’s filing with the U.S. Securities and Exchange Commission (SEC) detailing the plan to sell shares. It cautioned against investing in its common stock unless investors are “are prepared to incur the risk of losing all or a substantial portion” of their money.
“Our current market prices reflect market and trading dynamics unrelated to our underlying business,” it added. The filing is reminiscent of Hertz Global Holding Inc.’s plan to sell as much as $500 million shares last year. On the brink of bankruptcy, the car-rental company hoped to make strong gains from retail investors while warning that the bankruptcy process could wipe out shareholders.
The SEC is now looking into possible signs of market manipulation given the volatility in meme-stocks that sent jitters through the Wall Street.
AMC Entertainment shares are up about 2,500% in 2021 as the company has courted amateur investors since the Game Stop Short Squeeze in January. Until a few months ago, the company was close to declaring bankruptcy. The change in fortune was amplified by the significant amount of stock that has been sold short by retail traders seeking to benefit from a decline in AMC’s share price. When a company’s share prices start to fly high, including losses on short-sellers, they often buy back borrowed shares they had sold, fueling further gains.
On June 1, AMC issued 8.5 million shares of Class A common stock to Mudrick Capital for $230.5 million, which turned around and sold the $230 million position on the same day. The volatile whipsaw price action made a lot of analysts shake their heads, while CEO Adam Aron described the AMC stock sale as a “very smart raising of cash so that we can grow this company.”
According to Loop Capital’s Alan Gould, AMC stock “does not reflect fundamental value.” The analyst found AMC’s continued equity raises commendable, saying the company is being “as smart as they could be” by taking advantage of the soaring share price to issue stock, gaining capital to fund their operations.
“If I were Adam Aron, I would issue as much stock as I possibly could,” he said.
The drama over AMC’s stock prices is occurring against a backdrop of a revitalized North American box office, which saw Cruella and A Quiet Place Part II post strong opening weekends over Memorial Day.