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Topline
Shares of AMC Entertainment, the world’s largest movie theater chain and one of the top meme stocks boosted by bullish Reddit traders this year, are plunging Monday after the firm’s former controlling shareholder, the investment firm founded and controlled by Chinese billionaire Wang Jianlin, disclosed another round of sell-offs as volatility in meme stocks continues.
A person walks outside the AMC Empire 25 movie theater in Times Square.
Key Facts
As of 2:30 p.m. EDT Monday, AMC shares were sliding 8%, wiping out about $325 million in market value and pushing the stock’s losses to a staggering 38% since March 15, when Reddit traders rushed into the stock after Wang’s Dalian Wanda Group revealed it had ceded its majority control and trimmed its stake from more than 30% to 9.8%.
In a Friday regulatory filing, Beijing-based Wanda disclosed it has cut its stake even further, securing much of the run-up in AMC prices by selling off more than 15.6 million shares in early February and March for nearly $221 million; Wanda now owns just 6.8% of shares.
The bearish call from one of China’s richest magnates—whose firm purchased AMC while the stock was more than double its current levels—comes as Wall Street analysts continue to think that AMC is still incredibly overvalued.
The average price target among analysts covering the stock floating sits at about $4.50—nearly half the current price of $8.75 despite B. Riley Securities analyst Eric Wold issuing the highest AMC price target on Wall Street last Monday.
In a note to clients, Wold said he was “impressed” that Godzilla vs. Kong’s box-office debut smashed pandemic records, and he recommended investors buy AMC shares on an improved Covid-19 outlook, saying the stock’s price could go up to $13.
Chief Critic
Wall Street’s most negative outlook on AMC comes courtesy of Lightshed Partners, which issued a price target for shares of just $0.01 last month. “The future of movie-going is not in doubt,” Lightshed analyst Rich Greenfield wrote in a note. “The future of AMC Theaters, however, is very much in doubt, with its current stock price dramatically overvalued.” Greenfield also said there is a “substantial disconnect” between the company’s expected revenue and its increasing debt load. The company raised $1.3 billion in debt during the pandemic to help stay afloat, and it posted a net loss of nearly $4.6 billion last year.
Tangent
AMC isn’t the only meme stock falling hard on Monday. GameStop shares are down 14% after Ascendiant Capital Markets analyst Edward Woo warned that the stock’s Reddit-fueled rally will fade in the long run “to match [GameStop’s] current weak results and outlook.”
Key Background
The pandemic has been terrible for the leisure space, and particularly bad for AMC. Despite beating analyst expectations with its fourth-quarter earnings report last month, the firm’s total revenues of about $1.2 billion last year were just 23% of the sales it pulled in 2019. Greenfield says the firm will likely need to rely on additional share offerings to raise more money to stay afloat, which will further dilute the stock’s value. Despite the Monday plunge, AMC shares are still up more than 300% this year, but Morgan Stanley equity strategist Michael Wilson on Monday said that “very high” leverage in the financial system “could spell more trouble for riskier, more speculative investments.” The number of AMC shares on loan is at an all-time high of 132 million, according to financial analytics platform Ortex.
Further Reading
AMC Skyrockets After Chinese Billionaire’s Firm Cuts Stake, Ushering In Bullish Reddit Traders (Forbes)
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