AMC announced in August that it plans to issue 517 million shares of preferred stock, under the ticker symbol APE to raise more funds and counter its debts.
Shares of American movie theater chain AMC Entertainment Holdings Inc (NYSE: AMC) closed Tuesday trading at $2.55, down 18.27 percent from the day’s opening price. The losses were further exaggerated with approximately 1.18 percent during the after-hours trading session. The sudden drop in AMC shares was attributed to the shareholder’s disappointment in AMC’s management after allegedly pushing for further share dilution to raise billions of dollars to counter its huge debt. Notably, AMC Entertainment announced earlier in August that it intends to offer 517 million equity units APE shares and still be left with about 4.5 billion units in its custody to help it raise more funds.
The company used the same tactics to raise billions of dollars during the Covid-19 pandemic when most movie theaters were struggling to stay afloat. Having been hyped by a social media group dubbed WallStreetBets in early 2021, AMC shares gained the name meme stocks. Currently, the company is planning a 10-to-1 reverse stock split of its common stock, AMC, on Thursday.
Additionally, the company’s AMC shares outstanding are expected to increase to 550 million from a prior post-reverse split count of 52.5 million, thus further diluting its stock market with more than 390 million units.
“The continued decline in AMC shares … is likely due to investors focusing on the strong possibility that AMC begins issuing large amounts of equity to address the debt balance,” Eric Wold, an analyst at B. Riley Securities, noted on Tuesday. “While this is expected, I think this overlooks the opportunity for management to also utilize that access to capital and the still-elevated valuation multiple to pursue additional acquisition and expansion opportunities outside of the exhibition space.”
AMC Entertainment and Market Outlook
According to the latest stock market data, AMC shares have dropped about 50 percent in the past month as investors prepared for the stock conversion later this week. As a result, AMC shares are down approximately 73.3 percent in the past year to a market cap valuation of about $4.73 billion. However, some economists led by Roth MKM’s Handler think the common need to generate nearly $1 billion in adjusted EBITDA to justify its high market capitalization.
While issuing a price target of about 50 cents on AMC shares, Handler highlighted that the company has an upheaval amid lower turnover demand for movie theaters than anticipated during the post-Covid period.
Notably, AMC Entertainment reported a net loss of about $121.6 million on revenue of approximately $1.2 billion during the quarter that ended in June.
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