March 25, 2020:
COVID is sweeping the globe, causing shutdowns worldwide. One casualty: all 1,000 theaters of 100 year old AMC Entertainment Holdings, Inc. Like many businesses, its ability to remain solvent was in serious doubt.
Under these cirumstances, a lot of CEOs arrange a golden parachute for themselves and a few golf buddies in the C-suite and throw the frontline workers to the wolves. But not AMC CEO Adam Aron.
He furloughed himself and the entire headquarters staff. Never have I heard of a CEO furloughing himself to save his company money, no matter how dire the circumstances. Whatever AMC’s other problems, it was clear to me then that Aron is a true leader with the company’s best interests at heart.
I bet Aron, his executive team, and the employees manning their theaters could’ve never guessed where AMC would be a year later: solvent, reopening, and an unexpected stock market darling. Indeed, AMC stock is up more than 20-fold this year, with retail traders piling in.
Aron took advantage of that soaring share price last week, selling 20 million new shares for over $800 million. Some have critized that move as selling out existing shareholders by diluting their ownership stake, but I think this decision is a shrewd move to put the company on solid long term footing.
AMC lost over $4 billion in 2020 amid COVID shutdowns and ended the year with just $300 million in cash left. The company faced bankruptcy in a matter of months, if not less. But AMC capitalized on its increasing stock price early this year to issue more shares, and ended the first quarter of 2021 sitting on over $800 million.
With last week’s $800 million sale, AMC’s cash hoard likely exceeds $1.5 billion, taking bankruptcy off the table for the forseeable future.
And while the share sales early in the year involved significant dilution, last week’s issuances only increased the share count by about 4%. With such a high share price, AMC simply doesn’t need to sell as many shares to rake in a nice cash pile. To me, 4% dilution is a small price to pay to ensure the future of a company that looked to be on its last legs just a few months ago.
Do the fundamentals justify owning AMC at current prices? Probably not. But in a world where corporate leadership is often venal, I applaud Aron for putting the company first and ensuring its future. In the long run, its employees, customers, and shareholders will benefit from that.
More on meme stocks:
- Wall Street Has a New Tactic in its Fight Against AMC: Options
- Wendy’s: a Deliciously Different Meme Stock
- Short Sellers Lose $1 Billion on AMC
Photo: “Police Stationed outside AMC Theater showing Joker film 4573” by Brechtbug is licensed under CC BY-NC-ND 2.0
If you found this post interesting, please share it on Twitter/Reddit/etc. using the buttons at the bottom of the page. This helps more people find the blog!
Save Money on Stuff I Use:
This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.
If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account. I will also get a fee waiver for 90-365 days, depending on what type of account you open.
The only place I buy vitamins and supplements. I recently placed an order and received it in less than 48 hours with free shipping! I compared the prices and they were lower than Amazon. I also love how they test a lot of the vitamins so that you know you’re getting what the label says. This isn’t always the case with supplements.
Use this link to save 5%! I’ll also get 5% of however much you spend, at no cost to you.
My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.
Use this link to sign up and you’ll save $10 on your first order. I’ll also get $10.