Embracing The Meme, AMC Style

Many of us are familiar with the phrase “don’t let the facts get in the way of a good story.”It applies to many facets of life, but certainly to investing in so-called “meme stocks”.The latest news on AMC Entertainment (AMC) shows that the company’s management has decided to fully embrace, if not encourage meme stock traders. One can argue that this is even a prudent strategy. It’s hard to blame the management of a heavily indebted company of capitalizing upon a market mania to issue highly (ridiculously?) valued equity to help it replace expensive debt. Besides, who doesn’t like free popcorn? 

The latest news from AMC is that they created a program called AMC Investor Connect, and one of the perks for shareholders will be free popcorn at the company’s theaters. The free popcorn has replaced a much more inconvenient item in the news cycle — though to be fair, traders didn’t seem to care anyway. On Tuesday, AMC sold $230 million worth of new shares to a hedge fund called Mudrick Capital in a private deal. In a more conventional company, investors might be concerned about potential dilution, but the stock rallied after traders decided that the benefits to AMC’s balance sheet outweighed the dilution. At least that’s a reasonable explanation it rallied – who knows if that was actually the Reddit mob’s thought process. Later that day, news reports stated that Mudrick Capital had already sold their shares for a tidy profit (no lockup, apparently), and called the shares overvalued. This had little effect on the stock price, mind you, but before the potentially negative story could dominate today’s news flow, traders were distracted by free popcorn. 

AMC has been a serial issuer of stock over the past few months. Before yesterday’s private deal, they sold $407.3 million worth of shares on April 27th and announced another offering of $50 million on December 11th. There were also small offerings in November and September of last year. In all these cases, it appears that management decided that the risk of dilution to current investors was outweighed by the company’s capital needs. That is an understandable and rational choice, particularly when we consider the following uncomfortable facts about the company’s balance sheet and profitability. 

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