AMC Teaches Us All That Glitters Is Not Gold

AMC stock - AMC Teaches Us All That Glitters Is Not Gold

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  • AMC stock, one of last year’s great meme plays, has bought into a gold miner
  • Hycroft was a penny stock before AMC took its position
  • Both companies got a pop, but the gains won’t last. Investors should beware.

AMC Entertainment (NYSE:AMC) was a “meme play” in 2021. Small traders organized at Reddit’s r/Wallstreetbets put together a successful short squeeze. This took AMC “to the Moon.” Shares that traded at $2 each in January hit nearly $60 by last June. Since then, the air has gone out of the balloon. AMC stock was worth a little over $15 early this month.

Then CEO Adam Aron got an idea. Why not buy a big position in another penny stock and ride it? The stock he chose was Hycroft Mining (NASDAQ:HYMC), a Nevada-based gold and silver miner. It worked for a hot minute. It won’t work much longer.

AMC AMC Entertainment $15.53

The Hycroft Job

Hycroft is called a “penny stock” because it has a miniscule, easy-to-manipulate market cap of about $102 million. It’s not that the shares sell for a penny. But at $1.40, the opening price on March 17, they might as well.

Hycroft claims to have access to 15 million ounces of gold and 600 million ounces of silver in northern Nevada. The problem is getting it out and extracting it. CEO Diane Garrett claims her team can do it.

Until Aron bought 22% of the shares on AMC’s behalf, few believed her. By the time Aron tweeted about it, speculators had already made their move, sending Hycroft stock as high as $2.65.

He didn’t go in alone. Eric Sprott, a Canadian gold bug in his mid-70s, whose firm has been at this since 1981, also went into Hycroft. Between them they invested $56 million, starting at about $1.20/share. They can get warrants at about $1.08 each over the next five years. They didn’t take majority control, but they have a controlling position.

Bring on the Apes

Now comes the fun part, persuading small investors to join in.

AMC “struck gold” one booster wrote.  It’s “the golden ticket for shareholder value,” wrote TheStreet. I doubt either writer has gotten close enough to a gold mine to don a hard hat.

Aron has tried other things to boost the stock, which in the new “risk off” environment had fallen. One ploy was to start taking cryptocurrency for movie theater tickets. This is obviously another one.

Somehow, Aron has also accumulated some friends for his games. The California Public Employees Retirement System, known as Calpers, bought over 500,000 shares in the fourth quarter, as they fell from $37 each to $27. Calpers has had below-average returns lately. It should also be noted that almost everything was falling in the fourth quarter.

The Bottom Line

There are ways to take advantage of this.

Our Tim Biggam has recommended a “put spread” to get maximum returns from minimal moves in ASMC stock. Mark Hake sees people going back to AMC Theaters and believes the stock could be worth $18/share.

I don’t believe that. I don’t think even Aron believes that. That’s why he’s playing these games with investors’ money. AMC did $2.5 billion in business last year, and its losses came to half that take. Even in the “before times” of 2019, AMC lost money on $5.4 billion in sales.

I’m a long-term investor. I buy good companies and hold them. As I wrote in January, this is not that kind of a company. It’s a stock for “mad money,” which I define as “you must be mad to put your money there.”

On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.


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