AMC burnt over $900 million in the first 9 months of last year*. That presented a bit of a problem.

They had just $429 million in cash left going in the fall of 2020, and that would be gone in a matter of months. So, to stave off bankruptcy, AMC went into fundraising mode, big time.

AMC got a surprisingly good reception from investors and was able to sell over $500 million in new stock and borrow a further $400 million. Since then, additional stock sales have boosted their cash hoard to over $1.3 billion.

This fundraising bought AMC at least a year’s worth of breathing room, even if 2021 is no better than 2020, which seems unlikely. But there’s one little problem…

AMC had just over 100 million shares outstanding in the fall of 2020, per their latest quarterly report. It now has close to 500 million shares outstanding. So, every dollar AMC makes in the future (if it makes any) is now 20 cents as far as shareholders are concerned. Each dollar of profit is only worth 1/5 as much if your shares represent a portion of the company that’s only 1/5 as large as before. This is called dilution.

So this must have cratered AMC’s stock, right? Wrong. In fact, it’s actually up! On December 30, 2019, the stock traded at 7.32. It’s at 8.27 as I write this.

Investors are saying that a share of AMC is actually worth more than it was before COVID annihilated its business and dilution took away 4/5ths of the ownership rights in each share. That makes no sense.

I suspect this stock is being traded on the basis of memes and pure speculation. Indeed, it’s currently mentioned on Reddit’s Wallstreetbets more than any other stock. The price is pretty much impossible to justify rationally unless AMC suddenly makes far greater profits than ever before. Why would that happen all of a sudden, even as COVID is still with us?

That said, I have to applaud CEO Adam Aron and everyone at AMC for doing whatever it takes to save this company. Even the CEO was furloughed in March 2020 to conserve cash! That’s what I call leadership. However, it doesn’t make their stock a good bet at the current price.

I’m going to leave this one to the crowd at Wallstreetbets.

For more on the Wallstreetbets phenomenon, check out these posts:

If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

*See 11/4/20 10-Q report cash flow statement, cash used in operating and investing activities.

Photo: “AMC Theaters” by JeepersMedia is licensed under CC BY 2.0

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s