AMC theater stock prices are through the roof right now, but that doesn’t necessarily mean that the company is a good investment. In the first half of 2021, AMC stock has risen by 2,500 percent. The massive gains have helped the company through one of the most difficult times for movie theaters nationwide, but they may not be a sign of good times ahead for AMC.
The rising price is a sign of total disaster for any investors who’d been shorting AMC theater stock. If you take a short on a stock, you’re basically betting that the price of the stock will go down over time. AMC has been struggling for years, and many investment firms put their money up against the company. Should AMC stock continue to rise, there’s no limit to how much those firms could lose.
The story behind AMC’s current position isn’t exactly straightforward & clear-cut. Come with us, and we’ll help you understand what exactly is going on with AMC.
The coronavirus pandemic decimated countless industries, but it hit movie theaters particularly hard. In 2020, AMC saw a 77 percent loss in revenue and reported over $1 billion in losses. That’s a huge blow, but even before the pandemic struck, AMC’s prospects weren’t looking good.
For the past several years, box office sales across the industry have been slipping. At the same time, sales from the streaming market have risen sharply. AMC isn’t immune to industry trends. In two of the three years leading up to the pandemic, the company reported an annual loss. That’s part of why so many investors had taken a short position on the company’s stock.
Bang for your buck
After seeing their stock prices fall by 70 percent last year, AMC knew that something would need to be done in 2021. Now that theaters have reopened, they’re able to generate revenue with ticket sales, but there’s a good chance that those sales never again reach their pre-pandemic peaks.
In addition to standard revenue generation, AMC has also earned some cash by issuing new stock. They issued stock in the second quarter of this year and sold it off to the tune of $1.2 billion. Those sales worked double duty: earning the company money and boosting the overall stock price. With all that cash on hand, how is it possible that AMC is still on shaky ground?
When it comes to AMC theater stock, there’s no ignoring Reddit. Much like they did with Gamestop earlier this year, people on Reddit have organized themselves around buying up all the AMC theater stock they can. Initially, the goal was to destroy the financial firms who shorted AMC. Now the plot has taken on a life of its own as the organizers try to see just how high they can raise the price.
So, AMC’s stock price might be inflated, but they still have all that fresh cash. Unfortunately, many of the company’s other problems haven’t vanished. They still need to recuperate from years of net losses. They also have hundreds of millions of dollars of rent deferments from 2020. On top of all that, the company has more than $5 billion of corporate borrowings, and they aren’t earning enough to pay those back.
AMC is another example of a multi-billion-dollar company that’s apparently been run as though there were no tomorrow for years. Their current stock prices make the company look great, but behind the scenes, it looks like things are crumbling. There’s no telling how long the stock will continue to climb, so AMC and its investors should make the most of it while they can.
Are you an AMC investor? Are you hoping for the best for the company? Let us know in the comments.