Shares of the happiest of exhibitors AMC Entertainment continued an upward trajectory Monday fueled by retail traders on Reddit chat rooms, even as a leading Wall Street analyst downgraded the stock to ‘sell’ and valued it at $1.
“In our view, the recent volatility and spike in the company’s stock, thanks to the Reddit/WallStreetBets crowd, has decoupled AMC’s share price and its valuation. Near term prospects of bankruptcy have been avoided thanks to $1.2bn of fresh capital being raised since mid-December. However, equity shareholders have been diluted by roughly 75% over the last couple months and there is still approximately $5.7bn of debt, a total which is growing each quarter due to deferred interest payments,” writes Eric Handler of MKM Partners.
Dilution refers to millions of newly issued AMC shares, including to Silver Lake Partners, which last week swapped its AMC bonds for stock and subsequently cashed out in the midst of the #SaveAMC buying frenzy. Handler and others believe AMC is likely to explore an additional equity offering as a result of its elevated stock price — and who could blame it?
GameStop and other Reddit-targeted stocks have also soared in a sudden upending of the traditional investment ecosystem by retail traders. (GameStop’s eroding business model and skyrocketing shares were derided on SNL Saturday.) The action, which targets stocks with heavy short positions, is mostly happening on e-trading platforms like Robin Hood, which caused a furor last week by limiting trades.
AMC is up nearly 6% at $14 in midday trading. GameStop — whose shares had moved from $2.57 to a high of $483 — is down 25% at $244.
Meanwhile, spooked commentators Monday attributed a sharp spike in the price of silver to the Reddit “army,” which, they said, is now expanding into commodities – something denied and even ridiculed by some on Wall Street Bets.
“Guys DO NOT listen to the poeple influencing you to buy silver . The media is litterly coordinating a situation to get us all distracted from GME$ and AMC %,” said one WSB post, accusing mainstream media and investors of throwing out names that no one on Reddit is actually buying. “Iv been reading stuff all weekend about how R/ WSB IS into this stock and into this and that atleast 5 different stocks there attempting to get us to chase and when you go on WSB not a single one is spoken of.”
Others agreed, urging the Reddit community to focus on GameStop and AMC.
“They’re talking on CNBC as if people on Reddit are actually squeezing silver. It’s f-cking absurd, they’re practically encouraging it,” says another.
“We are going to spread ourselves too thin, it’s important that we unite our strategy into one stock at a time. AMC is already on the verge of skyrocketing with 500M in volume,” reads yet another (there are thousands). Focus on AMC guys, stop talking about all of these other stocks and stand together, if we want to screw these hedge investors it’s the only way to do it. Simply put the more of us that buy and hold AMC, the higher it will go this week.”
This is being called a populist revolution on Wall Street but there’s little clarity on the ultimate gains or losses that might be sustained by either individuals or institutions.
On AMC, Handler wrote, “the emotion behind the #SaveAMC movement could carry the shares higher in the near-term, but we believe this valuation-be-damned momentum is not sustainable over the long term.”
AMC theaters shuttered in March and have opened in fits and starts in the U.S. and around the world. The stock was pummeled as the pandemic lingered, key markets remained closed and studios postponed releases, fueling speculation of bankruptcy. Led by CEO Adam Aron, AMC announced a large financing package on Jan. 25 to see it through the year as moviegoing picked up. The stock responded, moving from a low of under two bucks to five or six — before the Reddit frenzy wafted it skyward to over $20.