AMC Entertainment: Free popcorn, exclusive screenings, and hedge fund dumping
Matt Weller, CFA, CMT June 3, 2021 12:46 AM
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
Learn more about equity trading opportunities.
How to trade with City Index
Follow these easy steps to start trading with City Index today:
- Open a City Index account, or log-in if you’re already a customer.
- Search for the market you want to trade in our award-winning platform.
- Choose your position and size, and your stop and limit levels.
- Place the trade.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.