Be prepared to lose money AMC warns Reddit investors
The stark warning came as the cinema chain, which owns the Odeon venues in the UK, announced it was raising US$587mln through its second share issue this week.
It also followed an offer of free popcorn on Wednesday from chief executive Adam Aron if people signed up for company updates in a move to improve communication with small investors.
AMC is one of a group of so-called meme stocks that have seen huge swings in their value as retail investors have banded together to rout institutional short-sellers using the Reddit forum r/wallstreetbets.
Around 80% of AMC’s share base comprises retail investors and the price almost doubled on Wednesday on frenetic trading following reports that Mudrick had bought US$230mln of new shares and subsequently sold them netting the hedge fund US$25mln.
In a statement with its latest funding round, AMC advised people not to invest “unless you are prepared to incur the risk of losing all or a substantial portion of your investment.
“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,” AMC said in the statement on Thursday.
Shares in the company closed down 18% on the warning at US$51.34 but that still represents an almost 25-fold rise since the start of the year and values it at US$25.7bn.
AMC has been badly affected by the closures of cinemas during the pandemic, but analysts say it was under pressure even before Coronavirus (COVID-19) due to the growth of streaming and a heavy debt burden.
On Thursday it unveiled plans to sell up to 11.6 mln shares for what it said were general corporate purposes, which is seen as cutting its debt.
Commentators said it was sensible that AMC takes advantage of the situation to reduce its debts.
“These prices are not going to last forever, so why not use this opportunity to shore up your balance sheet and raise some cash,” said Dennis Dick, a trader at Bright Trading in Las Vegas and reported by Reuters.
Even with the gains recently there are also many institutions still betting against the company’s recovery being sustained with around 90mln shares being shorted or sold in the expectation the price will go down yesterday.
Other memestocks had a mixed day with Blackberry rising 4%, while games retailer GameStop fell 9% and headphone group Koss tumbled 24%.