Shares of AMC Entertainment Jumped Thanks to Reddit Traders

Shares of AMC Entertainment jumped as much as 47% on Thursday and ended the session 35.6% higher at $26.52. Its shares soared again as speculative trading activity skyrocketed in the company’s stock among Reddit-obsessed day traders.

The main movie theater chain dethroned GameStop and obtained the status of the most-loved stock in the infamous WallStreetBets Reddit forum. With its massive rally on Thursday, the company diverged from its meme stock peer GameStop. The video game retailer made Wall Street history in January with its 400% short squeeze in a single stock. Shares of GameStop were up a much smaller 4.8% on Thursday after rallying 14% in the previous session.

The WallStreetBets chatroom on Thursday included posts about AMC Entertainment. One of the trending posts said, “AMC rocket ship”. The so-called short covering could be contributing to the company’s rally this week. It has about 20% of its float shares sold short, compared with a 5% short interest in a typical U.S. stock.

When a heavily shorted stock jumps higher in a swift fashion, short sellers are forced to buy back borrowed shares. They have to buy back borrowed shares to close out the short position and cut losses. The forced buying tends to support the rally even further.

According to the data, short sellers who placed bets against AMC Entertainment incurred a $1.3 billion loss this week alone. Analysts from Wall Street are trying to understand more than a 1,200% jump in AMC’s stock that started in January. The company has around $5 billion in debt as well as $450 million in deferred lease repayments. Its revenue fell due to the ongoing coronavirus pandemic.

Coronavirus pandemic and its impact on AMC Entertainment

The movie theater business is recovering, but AMC Entertainment is still facing steep headwinds. The company ended the first quarter with $1 billion in liquidity. Nonetheless, that cash on hand will keep the company afloat through 2022. It will also need audiences to return to cinemas in huge numbers to compensate for months of no revenue.

While initial box-office recipes are quite positive, fundamental elements of the movie theater business changed in 2020. For example, the pandemic altered theater capacity.

For the first quarter, the company posted $148.3 million in revenue, down 84.2% from the same period a year ago. The movie theater chain’s net loss shrank to $567.2 million, or $1.42 per share in the quarter. In 2020, in the first quarter, the company’s net loss was $2.18 billion or $2.88 per share.

Despite generating significantly lower revenue this year, AMC Entertainment’s value has nearly tripled thanks to these new retail investors. Two days ago, the company had an enterprise value of $13.4 billion.