Shares in money-losing movie theatre chain AMC continued their dizzying rise on Wednesday, doubling in value as retail traders continue to pile into the company on the theory that they’ve caught Wall Street investors in a squeeze.
AMC shares briefly topped $70 a share at one point on Wednesday, more than twice the $32 level they closed at the day before.
Even that $32 level is about three times what the company was worth barely a month ago. The company has become the latest target in a battle between retail traders and Wall Street investors known as short sellers, who make money when stocks go down.
Retail investors on social media networks like Reddit, Discord and others have been buying into the theatre chain in large numbers in recent weeks, buying up as many shares as they can get, despite the company’s underlying business still being negatively impacted by COVID-19.
Business isn’t booming
AMC has 585 movie theatres across the U.S. and another 97 in Canada and around the world. The vast majority of the chain’s locations are either closed or at reduced capacity, and last month AMC revealed it lost $567 million US in the first three months of the current fiscal year.
The number of paying customers declined by 88 per cent compared to the same period pre-pandemic. But that hasn’t stopped retail investors from pouring money into the chain on the belief that better times are ahead. The stock is up by more than 1,100 per cent this year.
Many Wall Street short sellers have been betting that the company’s share price would decline, but when momentum changes direction, those shorts are forced to buy into a rising stock price, a phenomenon known as a short squeeze.
WATCH | This short video explains how short selling works:
One of the most memorable short squeezes ever happened earlier this year in video game retailer GameStop, and the same ingredients are in place now for AMC.
Although the shares fell off a little in the afternoon, at $70 a share, AMC was valued at more than $25 billion US, which is more than GameStop is currently worth. More than 3 million individual people own AMC shares at the moment, and their combined stake adds up to more than 80 per cent of the company — an extraordinarily high ratio for any publicly traded company.
“AMC is trading as if this summer was going to have new Star Wars, Avengers, and Batman movies,” said Edward Moya, a strategist with foreign exchange firm Oanda. “The retail force behind this movement is still strong, so it is anyone’s guess how much larger this bubble can grow.”
“The (retail trading) party could go on as long as investors could continue co-acting,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “The problem is, the higher the price goes, the higher is the temptation to take profit and walk away.”
Chain to offer free popcorn for stock owners
AMC management has embraced its newfound popularity with retail investors, raising $230 million in cash this week by selling new shares to the public.
And the company launched what sounds like a loyalty program for its investors on Wednesday, unveiling plans to offer investors perks when they attend their theatres — including a free large popcorn when the attend their first in-person movie this summer.
“Even if our shareholders now number in the millions … these people are the owners of AMC, and I work for them,” CEO Adam Aron said in a news release announcing the initiative.