Reddit Darling AMC Surges Again And Short Sellers Scramble - Forbes

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Topline

Shares of AMC Entertainment jumped again on Friday, as the heavily shorted “meme” stock has soared more than 170% in the past week likely due to activities by individual traders on Reddit and other social media platforms that have forced institutional short sellers to start purchasing shares at higher prices to cover their position and attempt to cut their losses.

Key Facts

After surging 35.6% on Thursday, AMC shares were up another 22.6% to $32.51 per share as of 10:15 a.m. Friday.

Year-to-date, AMC has skyrocketed a staggering 1429%.

Giacomo Pierantoni, an analyst at Vanda Securities, told Forbes by email that on Thursday the purchase of AMC shares by retail investors accounted for 15% of total retail purchases for the day of $800 million – “quite impressive as the stock has only a $13 billion market cap.”

Key Background

Like other so-called meme stocks popular with Reddit traders, AMC has had a roller-coaster year. After hitting $19.90 per share on January 27, AMC shares subsequently plunged 72% in only two weeks. Since a recent closing low of $5.50 on Feb. 9, shares have more than quintupled in value since. On Thursday afternoon, when AMC shares had jumped nearly 50% at one point, Edward Moya, senior market analyst at Oanda, wrote: "The retail trader is at it again,” adding retail investors remain "adamantly committed" to taking on short sellers. AMC’s price jump this week has already resulted in a $1.3 billion loss for short sellers, according to data firm S3 Partners. Approximately 20% of AMC float shares sold short, versus an average 5% short interest in a typical U.S. stock, according to S3 Partners.

Chief Critic

While its share price skyrockets, the underlying company continues to bleed cash. In the first quarter, AMC posted a net loss of $567 million while revenues plunged by 84% to $148.3 million from the year-ago period. The company is also saddled with a debt load in excess of $10 billion. Rich Greenfield, media and tech analyst at research firm LightShed Partners told CNBC on Friday: “All that really matters here long term, [AMC] is never going to make cash again. They will never generate cash with their current capital structure. .... This just defies all logic.”

Tangent

Adding to AMC’s gloom Eric Wold, an analyst at B. Riley Securities cut his rating on shares to “neutral” from “buy,” on Wednesday citing he could not justify raising his $16 price target (even though shares are now trading at more than double that figure).

Big Number

$4.6 billion. That's the staggering record loss AMC incurred in 2020 as the pandemic closed hundreds of theatres, while revenues plunged 77.3% to $1.2 billion.