AMC Entertainment stock has seen more than 373% gains since January and its market cap is currently hovering slightly below $4.1 billion. We’re seeing the stock slide today after seeing some gains. Retail investors might be asking, “why is AMC share price going down”?
Good news is retail investors don’t have to panic. Here are a few reasons why AMC Entertainment has been on sale.
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#1. AMC’s CEO seeks approval to potentially issue more stock
AMC’s CEO and President Adam Aron is asking its shareholders for approval on issuing 500 million more AMC shares.
This caused AMC’s stock price to slide because the dilution would mean short-term turmoil for the stock.
Why does AMC want to issue more shares?
Approving the issue of 500 million shares will allow AMC Entertainment to payoff what debt they have left much quicker.
If approved, it wouldn’t mean they issue all 500 million shares at once. It would grant them with the flexibility to grant them when needed.
What if we don’t approve the issue of 500 million more shares?
This isn’t a make or break for AMC. AMC Entertainment simply wants a backup plan should another catastrophic event occur again that would affect the business.
If shareholders don’t approve this, AMC will simply have to pay it’s dues as they profit instead of all at once. In other words, issuing 500 million shares provides the business with leverage.
What will happen if this is approved?
If the issue of 500 million additional shares is approved then AMC’s share price could potentially go down.
AMC entertainment will have money to payoff any small debt they have leftover quickly, and it will benefit the business long-term.
What does an AMC dilution mean for a short squeeze?
At the moment retail investors are holding real AMC shares. Shorts need to buy back these shares. By keeping the supply low, retail investors can demand the price of a share.
- A dilution of AMC stock would not work in the retail investors favor, short-term.
- If more shares are issued, AMC stock becomes more of a long-term investment but has lots of positive potential.
A dilution would increase the number of shares and lower the share price when granted. With more shares available in the market, institutions who traded naked shares could cover their butts instead of buying from the retail investor.
As you can tell, there are both PROS and CONS to a dilution.
So, can AMC still squeeze with a dilution?
If a dilution occurs, shorts could take this opportunity to cover their positions at a lower price which would still cause a short squeeze.
Shorts can no longer drive AMC Entertainment to the ground. They’ll have to cover with or without a dilution.
Regardless of what Adam Aron said on an interview with Trey’s Trades, some people are still iffy about it.
#2. AMC has had a small selloff
Another reason why AMC shares have slid is because AMC is having a small selloff, but this is completely normal. Internal shareholders will usually sell a small portion of their shares to cash in profits on the way up.
Small retail investors waiting on a short squeeze should continue to hold their positions. Selloffs on the way up is something mainly individuals with a lot of access are able to do but should not scare retail investors.
Godzilla vs. Kong secures $9.6 million in ticket sales
Warner Bros. said Thursday that “Godzilla vs. Kong” secured $9.6 million in ticket sales on its opening night. This has been a record debut for the pandemic.
Adam Aron noted that the attendance for the opening in North America was 10 times what it has been so far in 2021.
Very positive news for AMC Entertainment.
#3. Short-ladder attacks
With the short borrow fee going up for short sellers, it’s no surprise to see them trying to drive AMC’s share price lower.
You can tell a short attack is occurring by the patterns on a stock chart. Usually when the stock moves up you’ll see it come down vigorously until you see the pattern of a ladder going downwards.
This sort of attack is caused by shorts in efforts to prevent the stock from going higher.
Related: How do hedge funds manipulate the stock market?
So, should retail investors be worried?
Not at all. AMC Entertainment as a business is very bullish. They’re taking action to scale the company in the right direction.
Whether the market is red or green, AMC’s revenue is growing and a lot of positivity is flowing their way.
We’re personally excited for new titles coming out soon.
