AMC Entertainment (NYSE:AMC) CEO Adam Aron just hinted at destroying the short thesis.
The movie theatre chain has been under attack by short sellers since before the pandemic.
However, short sellers saw an opportunity when the world’s largest movie theatre chain closed its doors in 2020 due to the pandemic lockdowns.
Adam Aron says the company went from earning millions per month to $0 overnight during the wake of the Coronavirus pandemic.
When retail investors found how high the short interest data in AMC was, they piled up to squeeze short sellers from their positions by purchasing shares of the movie theater chain en masse.
At first, investors were able to drive AMC’s stock price to $20 in January.
Then, shareholders saw AMC stock hit an all-time high of $72 per share in June.
Since then, low borrow fees have made it easier for short sellers to bring the stock back down.
Adam Aron on an AMC Short Squeeze
AMC CEO Adam Aron has said in the past that to his personal knowledge, there are no synthetic AMC shares (naked shares used to illegally drive the price of a share down).
Genius Group (GNS) CEO Roger Hamilton, who is leading a group of CEOs to take legal action against short sellers and toxic lenders has reached out to Adam Aron in efforts to fight market injustices.
“It may boil down to this. Many of you are frustrated, strongly urging us to address market forces that you are convinced are unfair. We continuously think about what actions would be wise and CREDIBLE. Certainly good ideas: Build up our cash reserves and smartly lead AMC forward,” said Adam Aron on Twitter.
Some investors believe AMC’s debt covenants are restricting the CEO from speaking publicly about the short seller stock manipulation happening with AMC since the lenders themselves are short on AMC Entertainment stock.
Debt covenants are restrictions that lenders (creditors, debt holders, investors) put on lending agreements to limit the actions of the borrower (debtor), AMC Entertainment.
In other words, debt covenants are agreements between a company (AMC) and its lenders (Citi, Goldman, Credit Suisse) that the company will operate within certain rules set by the lenders.
Should a borrower violate a covenant, such as not maintaining a certain interest coverage ratio or engaging in unpermitted business activities, it may constitute a loan default, per The Balance.
Destroying the Short Thesis
On Twitter, Adam Aron responded directly to a user regarding AMC’s short thesis.
The user said, “Shorts attack companies they feel they can destroy. If you become a successful company you destroy a short’s thesis hence no logical reason to continue shorting. This is @CEOAdam strategy and the only strategy that has ever worked in the history of the market! #AMC#AMCSqueeze.”
To which the CEO answered:
“Joe, you nailed it. I could not have put it better myself”.
Adam Aron has made it clear that his way to tackle the short thesis is strictly through a fundamental process and strategy.
Some investors argue that he could tackle the short thesis both through fundamentals and legal action.
But as Roger Hamilton has stated, it might be best for a company to get their finances in order before proceeding with such a task.
Do you believe AMC Entertainment will end the short thesis once and for all?
Leave your thoughts in the comment section below.
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