Premium movie-theater chain, AMC's stock rose 23% on Tuesday, and has risen 166% since May 21st. The latest pump comes after AMC announced it had sold $230 million in stock to a hedge fund. Typically after such an offering, shares fall in value, as existing investors get diluted, but in this meme stock's world, the "apes" (retail investor fans of AMC) will not let this happen and drove prices the other way.
Six months ago shares were trading around $2 and AMC warned of a possible bankruptcy after Covid-19 nearly KO'd its business. After the apes drove up the price of the stock for no apparent reason, the Company was able to swoop-in and raise money that basically saved it from going bankrupt. Tuesday's deal was the 3rd capital raise that AMC has pulled off in the first half of 2021 following its $917 million equity/debt raise in January and $428 million equity raise in May.
AMC is making a risky bet that its apes will remain strong and continue to prop up the economy. Instead of focusing on paying down a s***load of debt on its balance sheet, AMC plans to double down and acquire more theaters. CEO, Adam Aron is not only aware of his ape army support but returns the favor as well. Aron plans to donate $50k to the Dian Foessey Gorilla fund to appeal to their "ape" investors.
Short Squeez Takeaway: AMC is playing a risky game, a game that has only been made possible by the lifeline retail investors have given it. Instead of making more responsible decisions such as paying off its expensive debt, it's chasing risky growth. It could be a dangerous decision for its 3.2 million retail investors (80% of ownership), who will be left holding the bag if things don't work out.