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AMC launches new share sale as it warns investors they may lose money

Some Wall Street analysts say the cinema operator is already heavily overvalued

An AMC movie theater in Maryland, US. AMC’s share price nearly doubled on Wednesday, a day after it issued 8.5 million shares to Mudrick Capital, which the hedge fund flipped at a profit. Photograph: Jim Watson/AFP

Thu Jun 3 2021 - 13:39

AMC Entertainment launched its second share issue in three days on Thursday, while warning investors that after a week of stellar gains they risked losing their shirts if they backed the company at current prices.

AMC’s stock, initially up more than 14 per cent, fell back to stand roughly flat after the company announced it had agreed to sell up to 11.55 million of its shares from time to time at its discretion in an at-the-market offering programme.

AMC's share price nearly doubled on Wednesday, a day after it issued 8.5 million shares to Mudrick Capital, which the hedge fund flipped at a profit.

A number of Wall Street analysts have said the cinema operator is already heavily overvalued and many institutional traders have said they were steering clear of the stock, the latest center of attention for a pack of small-time traders organised on Reddit and other social media platforms.

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“Our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last,” AMC in a statement.

Echoing a warning from regulators earlier this year, it added: “Under the circumstances, we caution you against investing in our Class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment.”

The company said in January it had secured almost $1 billion in new funding and cash from issues since mid-December, and it has continued with further issues since, even as analysts worried that it was massively overvalued.

Boost unlikely

David Trainer, CEO of investment research firm New Constructs said that the rise of streaming and stiff competition facing movie theaters meant the US economy's reopening is unlikely to boost the AMC's performance.

“AMC’s business was trending in the wrong direction even prior to the Covid-19 pandemic...We think AMC’s stock is worth $0 per share, given its weak earnings, dilution from recent stock offerings and mountain of debt.”

Shares in the company, however, have continued to gain as they were hyped online.

The pack continues to call for small investors to buy shares and call options on certain “meme stocks”, caring little about the companies’ fundamentals and particularly targeting stocks with high short interest to force bearish investors to unwind their bets at a loss.

Of other big recent "meme" plays, BlackBerry Ltd's US listing was up 19 per cent before the bell, while GameStop Corp dipped 5 per cent and Koss Corp shed 17 per cent.

A short squeeze in GameStop in January triggered regulatory concern about the stability of brokers, with the National Securities Clearing Corp (NSCC) later applying to tighten rules on the deposits brokers are needed to post ahead of stock options expiry. – Reuters

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