After a spectacular two-day rally, AMC Entertainment shares were looking a little worse for wear on Friday January 29th. Stocks closed down more than 56% overnight Thursday January 28th, following a rise of more than 300% on Wednesday January 27th.
As you’re probably aware of by now, AMC’s rollercoaster has followed a similar path as a number of other stocks, including GameStop, BlackBerry, and Nokia, whose names have become the focus of a group of amateur punters on Reddit’s Wallstreetbets.
At the end of January 2021, Reddit users had been calling on efforts to boost GameStop’s share price after it was named by CNBC as the most shorted stock on Wall Street. The idea being that when a stock price gets inflated, short-sellers lose money, and of course the buyers profit.
That drive turned into a frenzy after Elon Musk, a well-known critic of short-sellers, tweeted his own support of the group, in Musk’s typical fashion.
Gamestonk!! https://t.co/RZtkDzAewJ
— Elon Musk (@elonmusk) January 26, 2021
That success lead Reddit users to call out other highly shorted stocks, including US movie theatre firm AMC Entertainment. Bizarrely, many of the stocks named on wallstreetbets appeared simply to be sentimental brands that users had an affiliation with.
By Tuesday, shares had risen by more than 40% as more retail investors took on the pledge against hedge funds in posts urging others to buy and hold firm. Unfortunately, AMC must not have received the memo as the company sold US$304.8 million in stocks the next day.
By Thursday, AMC stocks were up more than 300%, meaning that if AMC had held on just one more day, they could have potentially sold the same number of shares for US$1.26 billion.
By Friday, despite what amounts to a rallying cry by reddit users, AMC’s share price had collapsed by more than 56%.
The heightened volatility caused a number of issues for retail share trading platforms, where some appeared to simply freeze under the pressure. Others, including Robinhood in the US, eToro and Interactive Brokers, announced they’d paused all trades on AMC, GME and dozens of others from Wednesday night.
With millions of users on Robinhood blocked from buying, the Wallstreetbets list of stocks, including AMC, began to tumble.
Some social media media channels also went dark. Moderators on Wallstreetbets temporarily set the forum to private mode, citing “unprecedented scale” from new users. Facebook also took down a popular Wall Street discussion group called “Robinhood Stock Traders” on Wednesday, although the social media platform denied it was related the stock frenzy.
AMC’s stock price over the next few days hinges on how much stamina Reddit users have and whether retail trading platforms provide unhindered access to the stock.
The danger here is that any short-term buying decisions will be purely speculative. Nobody knows how much leeway will be offered to social media forums or whether new restrictions might be introduced. We might see online brokers shut down trades again, or we not.
Looking at the long-term fundamentals, AMC also has a few weaknesses. With movie release schedules continually pushed back and many cinemas banned in some states due to COVID-19, ticket sales have plummeted over the last 12 months.
Last year, AMC was forced to raise capital through a restructure to stay afloat after ticket sales fell 80%. Bearing in mind that when a company enters bankruptcy, shareholders usually see their stock disappear. Its CEO Adam Aron said in a press release in August last year:
“The magnitude of the impact of the global pandemic on the theatrical exhibition industry was again evident in our third quarter results, as theatre operations in the U.S. were suspended for nearly two-thirds of the quarter. And yet, despite unrelenting obstacles, the AMC team continued to make significant progress in pursuit of our three key priorities: to strengthen our liquidity position”
Even if all social activities returns to normal on the back of a vaccine, there’s still the rise of online streaming services like Netflix to contend with in the long-run. That being said, AMC’s share price is still far from where it was pre-pandemic. Just two years ago, AMC was hitting upwards of $30 and then $16 in 2019.
Most recently, following yet another Reddit rally, AMC’s stock price rose more than 40% on Thursday May 27th. The stock had been trending upward since Monday May 24th, but shot up upon market open on Thursday as a result of the now infamous WallStreetBets Reddit forum.
Analysts are saying that the jump has likely been driven by multiple factors that have persuaded individual retail traders to get back on the AMC bandwagon. With cryptocurrencies facing a dip this month, many retail investors have re-entered the stock market on the hunt for gains.
As for the next few days, it seems anything is possible. One thing is certain, it’s a risky market.
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