Topline
After a massive run-up in its stock price, AMC Entertainment announced Thursday morning it’s looking to raise additional cash by selling as many as 11.6 million shares in a new offering, but the firm, which has recently embraced its emphatic and largely Reddit-based individual investors, also cautioned against the investment unless buyers are prepared to—at worst—lose it all.
After nearly doubling Tuesday, AMC stock has surged about 30-fold this year.
Key Facts
AMC, the world’s largest movie theater chain, has enlisted Citigroup and B. Riley Securities to help it raise as much as $722 million based on Wednesday’s closing prices.
The firm says it will use the net proceeds to pay back part of its massive debt load (more than $5 billion), acquire new theater assets (something CEO Adam Aron teased Wednesday) and fund “other investments.”
In the filing, however, the company also cautioned against the investment, saying that “under the circumstances,” people should only buy into the stock if they are “prepared to incur the risk of losing all or a substantial portion” of their investment.
The company cited a glut in short interest, access to margin debt, options trading and the bullish sentiment among retail investors as reasons for current trading prices before warning that gains driven by a short squeeze would be “inflated” until short positions abate—something that caused a crash among so-called meme stocks in late January.
AMC shares, which last closed at $62.55, were down about 10% in pre-market trading, as of 8:15 a.m. EDT.
Crucial Quote
“Our market capitalization, as implied by various trading prices, currently reflects valuations that diverge significantly from those seen prior to recent volatility and that are significantly higher than our market capitalization immediately prior to the Covid-19 pandemic,” AMC said Thursday while announcing the new stock sale.
Surprising Fact
AMC shares surged 96% Tuesday, pushing gains to nearly 2,900% this year.
Key Background
The recent rise in AMC and othe meme stocks follows a similar surge in January, when activist investors perched on Reddit’s r/WallStreetBets board pumped struggling firms like AMC, GameStop and BlackBerry in a bid to hurt short-sellers—fueling what’s known as a short squeeze. “There’s a certain vigilante mindset amongst those traders being drawn into this social-media frenzy to pump certain stocks,” Nigel Green, the CEO of $12 billion advisory Devere Group, said in an email last weeka Friday email, adding that “extreme caution should be exercised before joining stock frenzies of such nature.” Meme stocks have been incredibly volatile this year, with most crashing in late January once institutional investors piled out of their short bets after weeks of meteoric gains. Thus far, only AMC, which has also benefited from broader optimism over businesses reopening, has recouped those losses.
Further Reading
AMC Skyrockets To New Record High After Announcing Perks Geared Toward ‘Extraordinary’ Individual Investors (Forbes)
Not Just AMC: These Are The Meme Stocks Reddit Traders Are Pumping Again As Experts Urge ‘Extreme Caution’ (Forbes)
