Ailing theater chain AMC sees stock soar 274% in one day
The nation's largest movie theater chain seemed on the verge of collapse a few months ago. Now AMC Entertainment has one of the hottest stocks of 2021, with its shares soaring nearly 300% Wednesday.
AMC is the latest beneficiary of a movement being powered by amateur investors on Reddit who appear to have sent shares of struggling retailer Gamestop up more than 2,000% during the past month. AMC appears to be their next target, Wedbush Securities analyst Michael Pachter told CBS MoneyWatch.
"Hold the line AMC. Time to pile in before blast off!," wrote one of the many posters mentioning AMC on the group's Reddit forum Wednesday.
The investors, who congregate under a Reddit group called Wallstreetbets, began snapping up GameStop and AMC shares even as Wall Street hedge funds bet against the companies, which have been hurt by a sharp decline in consumers shopping in person or sitting in crowded cinemas during coronavirus pandemic.
"What is happening with AMC and GameStop is not new," analyst Nick Raich of independent research firm Earnings Scout said in a note to investors. "In the late 1990s, I spent time in the Chicago Board Options Exchange pits and watched traders collaborate and short-squeeze a trader they disliked when they learned he was betting against a thinly traded stock."
AMC's stock surge comes after the company announced it had secured almost $1 billion in new funding to keep its theaters in business. That announcement came Monday, when AMC was trading at around $4.50 per share. As of Wednesday the price has jumped more than fourfold to around $19. AMC said Wednesday is has raised an additional $305 million through a stock offering.
Stock rising despite massive losses
The cinema company's jumping market value comes as it continues to reel from the business impact of the pandemic. AMC estimated that its revenue dropped 54%, to $2.5 billion, between January and September of last year. In its most recent quarter, AMC lost $906 million. The company also reported a 92% drop in U.S. attendance in the fourth quarter, compared to the year-ago period, according to an SEC filing.
Support from investors may carry AMC past July, but its long-term prospects remain dim, S&P Global analyst Scott Zari told CBS MoneyWatch. The theater chain took on more than a billion dollars in high-interest debt and it has deferred paying rent on many of its properties. But rent and interest payments from those loans will come due soon after the pandemic lifts.
"Once we get through this, they're going to come out the other side with considerably more debt and interest than before the pandemic," Zari said. "They have to find some way to reduce the interest burden."
That could be a tall task considering that video-streaming services are increasingly the new launchpad for movies, he added.
Still, AMC CEO Adam Aron is optimistic about the company's future. "In my heart of hearts, I always thought we would make it and make it we have done," Aron told Fox Business on Tuesday. "We've raised a lot of money and bought ourselves a lot of time. I'm looking forward to a nice, healthy, strong summer — knock on wood."