Regardless of your interest in the stock market, you couldn’t help but hear about all the excitement and volatility over “meme” stocks this past year. These are the stocks that see dramatic price movement fueled by social media posts on sites like Reddit – the foremost probably being GameStop (GME) and AMC Entertainment (AMC). The hope of many meme investors is that as the stock gains more popularity, more people will buy and hold it, helping to create a “short squeeze” that causes the stock price to surge higher. While some may argue about when a squeeze occurs, it appears something happened recently in late May/early June 2021 when AMC ran from around $12 to a high of $72.62 in a few days.
We’ve previously looked into the shares of GME. Today we’ll take a look at some recent financial filings of AMC to check out the float and see how the company has managed its shares. But first, let’s look how the float of AMC has been reported on FloatChecker the last few months. Also included is the percent of the float that is sold short – or short interest.
It’s no secret that AMC has been taking on debt and issuing shares to fund operations through the coronavirus pandemic. Like all publicly traded companies, AMC last reported the stock float in its 10-K Annual Report filed March 12, 2021. There, the float is listed at 52.55 million shares based on a calculation date of June 30, 2020:
Looking up the 10-Q Quarterly Report for June 30, 2020 shows an outstanding share amount of 57.55 million of AMC’s Class A common stock. That outstanding share number has gone up considerably in the ensuing months. Its latest Prospectus, filed June 3, 2021, provides a good summary explaining how the company issued approximately 450 million new shares between January 1, 2020 and June 2, 2021 to keep the business going.
That same Prospectus is replete with statements warning investors of the dilutive effect the new shares could have on the stock. Why? Because most investors generally see the new shares as reducing their voting power and causing the earnings per share to be spread out (or diluted) over a greater number of shares. This could cause the stock price to decrease. There are times when new shares can be positive for a business, such as needing capital to expand into new markets and grow operations. But it’s hard to see such positive reasons in the case of AMC.
The same Prospectus also has dire warnings concerning the social media effect on the stock and the significant risk of loss investors face. Somewhat strangely, AMC seems to downright discourage people from buying the stock, stating in bold type: “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.” Talk about a vote of confidence. Sheesh!
It’s hard to fault AMC for issuing new shares given the media attention and volatility surrounding the stock. But the company seemed to go a bit too far in March 2021 when it announced plans to issue 500 million new shares, bringing the outstanding shares into the 1 billion range. That immediately drew the ire of retail investors on Reddit and the company quickly scrapped those plans. Keep in mind, AMC is aware that it has about 3.2 million retail investors (and probably more). Diluting the shares further could cause them all to dump the stock, resulting in disaster for the stock price. More recently, AMC withdrew a proposal in early July 2021 to issue 25 million new shares. These actions show the power that retail shareholders wield over the company, but investors still need to stay wary of future dilution events.
Recent sales by two large investors also raised eyebrows. AMC’s largest shareholder, Chinese conglomerate Dalian Wanda Group, recently sold nearly all of its shares. Then the investment firm Mudrick Capital Management bought 8.5 million shares only to sell them the same day for a tidy profit. While people are always free to sell stock as they see fit, such high profile sales likely do little to engender confidence among retail investors.
Finally, a quick review of AMC’s most recent 10-Q Quarterly Report for the period ending March 31, 2021 exposes more issues. The company’s balance sheet shows debt of approximately $11 billion with a first quarter loss of $567 million. While all of that debt may not be due for several years, it’s hard to be optimistic in light of the continuing losses.
It does sadden me to write such a negative sounding piece on AMC. I love movies and would hate to see my neighborhood theatre disappear. So let’s focus on some positives. AMC recently reported new post-pandemic attendance records as some 2.5 million people returned to theatres in early July 2021. The company also used the cash it raised to take over two lucrative cinema locations: the Grove Theatre in Los Angeles and the Americana at Brand Theatre in Glendale, California. And after the Dalian Wanda Group exited the stock, AMC appointed its chief executive Adam Aron to Chairman of the Board. Aron has proven himself adept at dealing with social media investors.
Hopefully the tide will turn for AMC as the pandemic recedes. And as a retail investor myself, I do enjoy a good short squeeze. But will it be on the level of GameStop? Well, with the prospect of increasing stock float and decreasing short interest, it pays to be realistic. So as AMC warns in its financial filings, be careful if you are considering the stock and be prepared to lose some or all of your investment.