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Even though before COVID-19 hit the world, AMC focused heavily on growing its footprint and upgrading its theaters in order to generate revenue, many expected the pandemic to have changed its approach.
In what is a very surprising move, Mudrick Capital has sold off all of its stock in AMC Entertainment Holdings Inc (NYSE: AMC), a report by Bloomberg News says.
AMC stock has reacted to the news. In the pre-market today, the price is $38.44, which means that it is 19.98% up now.
While Mudrick did not immediately provide an explanation for its action, the decision to dispose of the stake might not be disconnected from a recent finding that the firm’s stock was overvalued.
AMC had noted in its securities filing on Tuesday that one risk factor for investors is that the stock could be considered overvalued.
Considering the fact that according to AMC filing, Mudrick purchased its 8.5 million shares at $27.12 apiece. But the company’s stock had hit a high of $33.53 per share when it sold it off, it could easily have gained more than $40 million on the rally.
In recent times, the movie theater chain has been named an overvalued stock by analysts who have warned that the debt-burdened company could ultimately go bankrupt, rendering the stock worthless. Incidentally, last week, the company’s shares spiked more than 116% from Monday to Friday, closing at $26.12. The stock has surged more than 1,100% since January.
However, rather than view its recent performances as an indication that it could get its finances back on track or focus on paying down its massive debt, the company said it would double down on future investments. In doing so, the company’s management is making a risky bet that these retail investors will continue to prop up the company.
It has also pivoted back to an offensive strategy on a bet that its retail investors will stick with the company long enough for it to recoup its pandemic losses. For example, in its securities filing, the company announced that it raised $230.5 million through the stock sale and would use those funds for potential acquisitions, upgrading its theaters and deleveraging its balance sheet.
Though before COVID-19 hit the world, AMC focused heavily on growing its footprint and upgrading its theaters in order to generate revenue, many expected the pandemic to have changed the company’s approach. Because with no money coming in from ticket sales and concessions, it fell behind on its rent and had to scurry to raise money just to get by. It was on the brink, which drew in short-sellers, who doubted the company would weather the storm.
But it did, partially because of the apes, who swooped in and drove up the stock price allowing the CEO, Adam Aron, to capitalize on the interest in the stock to raise funds.
Given our scale, experience and commitment to innovation and excellence, AMC is being presented with highly attractive theatre acquisition opportunities. We are in discussions, for example, with multiple landlords of superb theatres formerly operated by Arclight Cinemas and Pacific Theatres, Aron said, in one of the company’s filings.
While other companies in the company’s situation would make debt repayment its top priority for the next year, it seems to be confident of its own approach.
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