AMC Entertainment: Free popcorn, exclusive screenings, and hedge fund dumping
Matt Weller, CFA, CMT June 2, 2021 5:46 PM
While its stock probes record highs, AMC's business environment and financials remain dire...
Contrary to popular belief, AMC Entertainment (AMC) was already struggling before the worst global pandemic in a century forced it to close all its movie theatres, reporting losses in 7 of the 11 quarters heading into Q1 2020. Nonetheless, like a phoenix rising from the ashes, the theatre chain’s stock has found new life as (along with GameStop) the most iconic “meme stock” that traders flocked to in droves amidst this year’s retail trading renaissance.
Earlier this week, the company solidified its financial position by raising $230M from hedge fund Mudrick Capital to acquire other struggling theatre chains. In the words of AMC CEO Adam Aron, “with our increased liquidity, an increasingly vaccinated population, and the imminent release of blockbuster new movie titles, it is time for AMC to go on the offense again." Much to the chagrin of the “diamond hands” crowd, Mudrick immediately sold all of its shares, deeming the stock overvalued and booking a quick $40M for the hassle.
As a token of appreciation for its investors, AMC announced today that it was setting up a portal that would allow retail shareholders to get access to exclusive promotions, like free popcorn, and invitations to special screenings, as well as direct communications with the CEO. Rough day to be a popcorn fan at Mudrick Capital!
All jokes aside, the company remains in a difficult business position. While the relaxation of COVID restrictions at least allows it to resume operations, AMC is still battling against a broader trend toward enjoying movies at home on high-definition televisions and major films increasingly going direct-to-consumer as we’ve seen with HBO Max’s “Same Day Premiers” and Disney+ “Premier Access.”
Meanwhile, AMC’s financial situation is still dire, with $13B in debt compared to just $10B in assets in its most recent financial statement. Indeed, though stock investors are cheering the company’s recent maneuvers, bond investors are far more skeptical of the firm’s long-term prospects, with 2025 bonds trading at roughly 80 cents on the dollar. Put another way, the mostly inexperienced retail traders who just downloaded their first trading app on their phones earlier this year believe AMC has never been more valuable, while the generally more level-headed, professional corporate bond investors are indicating a non-trivial chance that the company could still go bankrupt in the next couple years.
AMC Technical Analysis
Regardless of how you slice it, AMC’s stock has been on a tear this year, surging from below $2.00 in early January to trade above $60 earlier today. As we’ve seen with Tesla Motors and certain cryptoassets over the last year, the question with these types of parabolic moves isn’t whether they’re reasonable, but where they will stop. After all, in the words of the great John Maynard Keynes, “markets can stay irrational longer than you can stay solvent.”
As long as the bullish music is playing, short-term traders and scalpers may favor intraday buying opportunities for continued moves into record territory. That said, once the bullish structure breaks, for example with a drop below the 8-day EMA or previous record highs in the mid-$30s, the resulting sentiment unwind could be dramatic, providing opportunities for bears to enter short positions as the difficult realities of the industry operating environment become clearer and the “sugar high” of free popcorn wears off!
Source: TradingView, StoneX
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