Meme stock AMC takes traders on a wild ride, pockets $780 million cash

The theatre chain was staring at potential bankruptcy only a few months ago in the face of the pandemic and brutal competition from streaming services. PHOTO: NYTIMES

NEW YORK (BLOOMBERG) - AMC Entertainment Holdings dizzied investors on Thursday (June 3) by losing 40 per cent of its market value, then regaining more than half of it - and pocketing more than US$587 million (S$780 million) in fresh cash by exploiting the frenzy.

The stock's wild rally of 2021 initially collapsed on Thursday when the company disclosed plans to sell more shares and use the money to cut its heavy debts. AMC went ahead with the sale anyway, ultimately collecting US$587 million by midday, and any concern among investors that their holdings would be watered down faded after AMC said it completed the programme.

After briefly erasing all of its losses, the shares closed 18 per cent lower at US$51.34 at 4pm in New York. The decline continued in after-hours trading, with the stock falling as much as 11 per cent.

It is just another remarkable turn of events for the theatre chain, which was staring at potential bankruptcy only a few months ago in the face of the pandemic and brutal competition from streaming services. Amid the mania for meme stocks, shareholders have brushed aside doubts about the wisdom of bidding up a company by about 3,000 per cent when its survival was so recently in doubt, and they reserved extra contempt for Wall Street professionals.

"As crazy as today's action might seem, it's a lot more normal than the action the stock has seen over the previous seven trading days," said Mr Matt Maley, chief strategist at Miller Tabak + Co. After all, he said, it is not unusual to see a stock back off after such an outsized rally. "Nothing that has taken place over the past two weeks should be considered normal, until today," he said.

Analysts such as Mr Chad Beynon at Macquarie are not backing off from predictions of a bigger plunge to come.

"Based on what we've seen with other retail stocks and given the paper profits from these retail investors, we would expect for shares to fade," Mr Beynon said. "Fundamentally, we still believe that AMC is worth US$6."

Credit investors, by contrast, pushed bond prices higher because even at the newly depressed price, the share sale was making a sizeable dent in AMC's crushing pile of debt, which stands at about US$5 billion.

"It would be irresponsible for the board and management to not do a raise to secure the balance sheet at these levels," said Mr Greg Taylor, chief investment officer at Purpose Investments. CreditSights analysts Matt Zloto and Hunter Martin wrote that a successful offering "would be a massive first step in deleveraging the AMC capital structure".

The Thursday morning filing for the equity sale came just days after AMC collected US$230.5 million by selling stock to Mudrick Capital Management. Those shares were then flipped and sold for a profit as the New York-based investment firm told clients AMC was overvalued.

The company warned investors flat out that they could see their stakes diluted and perhaps suffer heavy losses after the new offering, which was designed to be sold in the open market where retail traders thrive. Stocks sold in traditional offerings are purchased mostly by institutional investors.

"I would have told them to cash out the last time this happened," said Mr Barry Schwartz, chief investment officer at Baskin Financial Services. "In the dot-com boom it continued until everyone lost all their money and took the whole stock market down with it."

The frenzied rally has pushed shares in the money-losing company to improbable levels, giving the business a market capitalisation this week that was bigger than half of the listings in the S&P 500 Index. "AMC to the Moon" posters have popped up at street corners and pool parties in the US amid the reality-defying surge for AMC and other meme stocks.

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