Why AMC Leisure Inventory Jumped 27% Final Month

What happened

Shares of AMC Entertainment ((NYSE: AMC) rose by 27% last month, according to figures S&P Global Market Intelligence.

The theater operator’s shares rose as theaters reopened, fourth quarter earnings report released, and bullish traders on Reddit plowed into the stock again. It was another volatile month, as the chart below shows, but the stock’s gains in the first half of March were enough to end the month at 27%.

AMC Data from YCharts

so what

AMC shares have soared this year as traders on Reddit’s WallStreetBets board pumped up the stock and traded it along with it GameStop, another favorite of the Reddit crowd. Much of his gains last month came when GameStop stocks rose; The video game retailer ended March up 86%.

Image source: AMC Entertainment.

AMC had some good news to report last month: by March 5, AMC had reopened almost all of its domestic theaters and would soon be reopening in Los Angeles and New York, the two largest markets. The announcement was made during the company’s fourth quarter earnings report on March 10th. As expected, the numbers were gruesome: revenue fell 88% to $ 162.5 million and a net loss of nearly $ 1 billion on generally accepted accounting principles (GAAP) Base. It lost $ 375.7 million based on free cash flow.

However, the stock rose after the report as investors looked to the theaters to reopen, hoping the pent-up demand would propel the company’s rebound.

Later in the month the shares retired as Disney announced that Black Widow and Cruella will be released simultaneously in theaters and on Disney + this summer, showing that the old model of a 75-day cinematic exclusivity window may be dead even after the pandemic ends.

What now

The price of AMC stock is largely backed by traders who seem convinced that the stock can go significantly higher, despite the fact that its fundamentals are utterly terrible. The company has $ 5.7 billion in debt that it pays up to 15% interest on, and the company has diluted shareholders by more than 300% since the pandemic began, which means shareholders now have a much lower entitlement to winnings.

Even the pent-up demand argument seems to be in question after Disney’s announcement. In the near future the Entertainment inventory should continue to move on the whims of day traders, but the company’s poor fundamentals should eventually catch up.

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