Shares in AMC Entertainment (NYSE:AMC) stock fell 10% on Dec. 7 but regained some of the loss overnight on fears of a possible bankruptcy and restructuring.
AMC stock opened today at $6.25 and, as of this writing, sits up in the green by about 6%. More ominously, the preferred shares, designated as APE (NYSE:APE), opened at just 83 cents.
Fall of the Planet of the APEs
AMC CEO Adam Aron rode an early 2021 short squeeze that made AMC a meme stock for as long and hard as he could. The APE shares were named for the small traders, or APEs, who supported the stock to its high of nearly $60/share in June 2021. Aron later began supporting cryptocurrency and NFTs to keep up investor interest.
But the realities of a bear market are irresistible. AMC’s most recent quarterly report saw a loss of $227 million on revenue of $969 million. The company burned through $179 million in cash and ended the period with $896 million in liquidity, including available loan capacity.
AMC also ended the period with $9.5 billion in long-term debt. Those creditors are now reportedly organizing, preparing for the worst. Before Covid-19, AMC was regularly delivering over $500 million in operating cash flow each year, from about $5.5 billion in annual revenue. Now revenue is down 20% and there seems to be no end in sight to the losses.
As Aron himself said last month, there just aren’t enough movies. He insists 2023 will be better, with popular franchises dropping new releases and Harrison Ford debuting his final turn as Indiana Jones.
But investors won’t be able to enjoy the premieres unless the industry does some drastic surgery. AMC rival Cineworld Group, which owns Regal Theaters, filed for bankruptcy in September. The fear now is that AMC will be next.
AMC Stock: What Happens Next?
It’s an important lesson for small traders. If you’re to be involved in something like a short squeeze, you need to sell before fundamentals catch up to you.
Selling is the hardest thing for any investor to do. Even the best can fail the test, unable to figure out else to put the money we’re taking out. But until you learn the discipline you will remain an APE, and the end of every story will be Chapter 11.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.