Wall Street Versus Meme Army in AMC’s Big Share Price Divide

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Wall Street analysts who typically drive price action in stocks have been relegated to the role of mere extras in the market drama surrounding AMC Entertainment Holdings Inc.

The movie theater operator’s dizzying stock rally has created a large divide between investors and Wall Street strategists as its share soared to $47.91, more than 800% above the average forecast of analysts covering the stock tracked by Bloomberg. That gap between the two is the biggest among U.S. stocks with a market cap of $1 billion or more.

The situation shows how much meme stock investors have stolen the spotlight during the pandemic and the extent of the potential losses individuals and day traders will face -- if Wall Street turns out to be right.

Retail investors may eventually “become bored of the slow growth trajectory of a mature business,” Alicia Reese, an analyst who covers the stock at Wedbush Securities, said in an interview. “But the fervor is high and appears to be rising so a precipitous fall does not seem imminent.”

Wall Street Versus Meme Army in AMC’s Big Share Price Divide

Yet small-time investors have brushed past the advice of stock pundits who have been in the investing game for decades. The two worlds collided this week as AMC sold about 20 million shares capitalizing on its unlikely rally:

  • New York-based Mudrick Capital bought 8.5 million shares from the company, helping to drive the rally, and quickly flipped them for a profit, telling clients the stock was overvalued.
  • Then AMC collected $587 million in an 11.55 million share sale of an at-the-market offering on Thursday.

The company last said it’s asking investors for permission to sell 25 million new shares in 2022.

By Friday, volatility in AMC shares had spiked to a level not seen since the previous Reddit frenzy earlier this year. The stock gained 83% for the week, marking yet another win for small-time investors.

Chief Executive Officer Adam Aron played to the crowd by encouraging day traders, while taunting bears. “Watch out naysayers, $AMC is going to play on offense again. Here we come!” he said in a Twitter post on Tuesday. A day later, AMC announced that it would reward small-time investors with goodies such as special screenings and free popcorn, feeding into the meme stock frenzy. And the next day, the company warned in a regulatory filing that they could see their stakes diluted and perhaps lose everything after the new offering.

Indeed, half of the six share targets are likely lower than the price of a bag of popcorn at one of AMC’s cinemas -- between $1 and $1.55 -- and only one thinks the shares should fetch a double-digit price. Out of the nine analysts covering the stock, four have sell ratings while five recommend hanging on to shares investors currently own. None suggest buying more.

“There is no fundamental reason to be buying shares of AMC Entertainment,” said David Trainer, chief executive officer of New Constructs, an investment research firm. “The stock is up well over 2,000% so far this year and is trading at levels that are entirely disconnected from fundamentals.”

‘Zero Worth’

The movie theater industry is reeling from the pandemic with about 30% of U.S. theaters still closed temporarily or permanently. Even before that, the rise of streaming services had begun to lure moviegoers away from cinemas to the comfort of their own homes.

If a secular change was boosting the sector as a whole, investors would see a similar uptick in shares of industry peers Cinemark Holdings Inc., Marcus Corp., Imax Corp., Cineworld Group Plc and National CineMedia, Wedbush’s Reese said. While shares of these companies are up anywhere from 19% to 64%, that’s still a fraction of AMC’s meteoric rally.

Reese raised her share price forecast on Friday by one dollar to $7.50 after AMC sold shares at a premium and raised capital doing so. But she added that its stock is still “out of touch” with the company’s fundamentals.

Analysts also have been cutting their profit estimates on AMC since the pandemic struck last year and are now expecting the company to lose nearly $90 million over the next 12 months before interest, taxes, depreciation and amortization. Its debt pile has also ballooned over the past five years and it reported a wider-than-expected quarterly loss last month.

“We think AMC Entertainment’s stock is worth $0 per share, given its weak earnings, dilution from recent stock offerings and mountain of debt,” Trainer said.

©2021 Bloomberg L.P.

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