Topline
Shares of AMC Entertainment, the world's largest movie theater chain, skyrocketed more than 20% Tuesday morning after CEO Adam Aron rallied around retail traders' massive interest in the company while announcing it raised $230.5 million in a new stock sale—cashing in on its shares' meteoric rise despite analyst warnings that the high prices aren't warranted.
Key Facts
Lifting gains to more than 130% since last week, AMC shares surged above $32 Tuesday morning after the company said it raised the new cash by selling 8.5 million shares (about 1.7% of those outstanding) to existing investor Mudrick Capital Management at $27.12 apiece—nearly 14 times prices at the start of the year.
In a statement, Aron said the improved liquidity would be used "primarily" to help AMC growth, and he teased that the company has been in discussions to acquire "superb" theaters from smaller struggling theater chains Arclight Cinemas and Pacific Theatres.
"In our view, this is not mindless dilution, but rather [a] very smart raising of cash... to grow YOUR company," Aron said on Twitter, before echoing the tone of AMC's bullish retail traders: "Watch out naysayers, $AMC is going to play on offense again.
"Despite AMC's recent retail-fueled rise, analysts are still incredibly skeptical the gains will hold given the company's massive debt load (including more than $5 billion raised during the pandemic) and Hollywood studios that are increasingly turning to streaming companies for big releases.
Shares hold an average one-year price target of about $5.11 on Wall Street, implying that analysts believe the stock could likely plunge nearly 85%.
Crucial Quote
"Given our scale, experience and commitment to innovation and excellence, AMC is being presented with highly attractive theatre acquisition opportunities," Aron said Tuesday. "With this agreement... we have raised funds that will allow us to be aggressive in going after the most valuable theatre assets, as well as to make other strategic investments in our business and to pursue deleveraging opportunities.”
Surprising Fact
Despite crashing more than 70% earlier this year, AMC stock is now up more than 1,400% this year.
Key Background
AMC shares have skyrocketed past their peak at the height of a retail trading frenzy in late January as individual traders once again band together through Reddit and other social media platforms to squeeze institutional investors out of their bearish bets against the stock. Last week, as a slew of Twitter trends—including #AMCStrong and #AMCtothemoon—reflected the surging interest among social media traders, institutional investors shorting the stock lost out on more than $1 billion, according to data from financial analytics platform Ortex. Despite the heightened retail interest fueling sustained stock gains, analysts caution that shares are highly sensitive to changing sentiment—which could be triggered by anything from broader market concerns to a regulatory crackdown.
Tangent
Mudrick Capital, an investment firm focusing on distressed assets, helped AMC raise cash at the depths of the firm's pandemic uncertainty. In December, it agreed to convert $100 million of its existing AMC debt to about 13.7 million shares—at the time worth about $57 million and now worth more than $400 million. At the time, the company was burning about $125 million each month just to stay afloat.
Further Reading
AMC Surges Past January High As Reddit Traders Fuel Another Massive Short Squeeze (Forbes)
