AMC Entertainment Holdings Inc AMC stock gave up big premarket gains and was plunging Thursday after the company announced a new stock offering and warned its investors about the risks involved in owning shares.
What Happened: For the second time in three days, AMC announced a stock offering. The at-the-market offering of up to 11.5 million shares comes just two days after AMC issued 8.5 million shares to Mudrick Capital.
Mudrick immediately cashed out of the position for a significant profit during AMC’s extremely volatile rally this week.
Why It’s Important: AMC used extremely strong language in its 8-K filing, warning investors that buying into the frenzy could result in major losses.
“We believe that the recent volatility and 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. 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 the filing.
See Also: How To Buy AMC Stock
AMC’s outstanding share count is already up more than 333% since the beginning of 2020 as the company has been aggressively dumping stock to raise money to stave off bankruptcy.
In 2020, AMC reported a net loss of $4.59 billion. In the first quarter of 2021, the company added another $566.9 million to its loss tally. Even prior to the pandemic, AMC was hemorrhaging cash, reporting a $149.1-million net loss in 2019.
As the company itself acknowledged in Thursday’s filing, there is an extreme disconnect between AMC’s struggling business and its stock price. AMC’s market cap is nearly $30 billion, suggesting the company is somehow worth more than 60 times what it was back in 2014.
“Millions of people are playing musical chairs, and there’s only a handful of seats,” Michael Batnick, director of research at Ritholtz Wealth Management, wrote in a blog post on Thursday.
“When the music stops, prices will come crashing down.”
AMC Price Action: AMC shares were down 21.43% at $50.68 at last check Thursday.
Related Link: 8 Stocks With The Highest Short Percent Of Float Right Now
Benzinga’s Take: It’s difficult to make a long-term bullish case for a stock when the company itself is essentially telling investors they’d be nuts to buy at its current price. However, in the short-term, AMC may continue to trade higher on frenzied market speculation, and traders who time the moves correctly could cash out with some major gains.
Photo courtesy of AMC.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
