AMC Entertainment’s stock is beginning to cool after a year of tremendous increases. The company used the viral stock surge to resurrect itself.
Introduction
The movie theater network, AMC, barely averted bankruptcy last January. However, it benefited from a slew of new retail investors who helped it raise much-needed funds. These fervent supporters spearheaded a campaign that propelled AMC stock to an all-time high of $72.62 in June.
Table of content
- Taking advantage of meme stock
- Hurdles faced
- Aron’s leadership
- Putting together a ‘war chest’
- Conclusion
Taking Advantage of Meme Stock
Despite the fact that AMC’s stock ended at $16.02, the company will be in a stronger position in 2022 as a result of the fresh wave of investors’ backing and CEO Adam Aron’s opportunistic initiatives.
Of all the meme stocks, AMC seems to be the sharpest at understanding and capitalizing on the potential. Aron made smart stock sales and accumulated a $2 billion ‘war chest’ that could be utilized to invest in theater improvements and new cinema leases. Individual investors helped push the company’s shares to new highs.
These retail investors gave Adam Aron a major gift. Now, he will be able to sell enough shares to keep AMC afloat.
AMC can concentrate on shoring up its financial sheet by cutting its debt burden and interest expenses. It may also increase its programming and concession offerings now that it is on more solid ground.
Hurdles Faced
AMC is up against a lot of obstacles. The movie theater business is still recovering from the worldwide epidemic. Meanwhile, its new investor base may be disintegrating, with some owners having unrealistic growth expectations for AMC and others abandoning the company.
Stock investors are allowed to purchase and sell for any reason, but it is better for society if they buy and sell based on whether a firm looks to be undervalued in terms of long-term prospects. This delivers the correct message to the bosses. It allocates money to the most valuable applications. It makes the world a more secure place for indexers.
Aron’s Leadership
AMC Entertainment CEO Adam Aron has been filling a function that is usually occupied by short sellers. He’s been selling everything that looks to be wildly overpriced, even his own company’s shares. This has been purchased by Reddit users in apparent defiance of any financial rationale.
Last week, AMC sold 20 million shares in two tranches over three days for an average price of around $41. This has resulted in a huge increase in the stock since January 1.
Whereas the management of another ‘meme’ stock, GameStop, has been cautiously reserved, Mr. Aron has been outspoken and opportunistic. With the Securities and Exchange Commission clearly in mind, he has been cautious not to explain the present stock price.
He dances around the motivations of online traders who refer to themselves as ‘apes.’ They named themselves after the rebellious simians from the “Planet of the Apes” films. They claim that they want to drive the stock to the moon, out of rage at hedge firms that participate in short selling.
Putting Together a ‘War Chest’
AMC was in severe need of funds at the beginning of 2021. Analysts predict that without finances, it will be forced to seek Chapter 11 bankruptcy protection in order to restructure more than $5 billion in debt accumulated before the outbreak. The company’s shares reached an all-time low of $1.91 at that time.
AMC, on the other hand, was able to raise about $500 million by issuing additional common stock and $411 million by upsizing and refinancing its European revolving credit facility in January 2021. On this announcement, the company’s stock surged to roughly $5 per share.
This, along with a $100 million injection from Mudrick Capital Management in late 2020, meant that any notion of AMC’s impending insolvency was absolutely off the table.
AMC’s stock started its rollercoaster trip in earnest two days later. Investors in the Reddit community launched a short squeeze, sending shares up 300% to $20.
Conclusion
The next priority for AMC is debt repayment. The Wall Street Journal reported on Monday that AMC is in advanced refinancing negotiations with a number of companies to reduce its interest load and extend the maturity of its debt by several years.
Aron listed debt restructuring as a major target for 2022 earlier this month. None of its debts are due until next year.
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