It’s been a while since the AMC apes had anything good to report. The digital army that has powered AMC Entertainment (NYSE:AMC) to meme stock status has watched its stock decline more than 60% since its August 2022 surge. It’s been an even rockier road for the AMC Preferred Equity Units (NYSE:APE). Investors got their wish when AMC issued a preferred share dividend with the trading symbol APE but it hasn’t yielded positive results. APE stock has been trending downward for the past six months, shedding 85% of its value. Yesterday, it reached a new low yesterday when it slipped below the per-share price of $1.
It’s not news that AMC has been facing considerable headwinds lately. Movie theater attendance has been falling throughout the year and there is data that suggests it can’t be blamed on Covid-19. However, AMC stock isn’t falling by the same amount. This type of price divergence should worry investors. However, some investors have raised the possibility of boosting prices through a reverse stock split and CEO Adam Aron hasn’t shot down the idea.
Let’s take a look at the other factors contributing to the current declines of both APE stock and AMC.
What’s Happening With APE Stock
AMC’s preferred stock started trading at $1.05 yesterday but less than an hour later, it had dipped below $1 per share. Since then, it only continued falling, plunging more than 13% for the day. Since then, APE stock has rebounded 10% and is back to trading just above $1 per share.
This positive momentum may be due to a potential reverse stock split. The Street reports that during a recent earnings call, someone asked Aron if the company would consider implementing a reverse split on APE stock. Sometimes seen as a sign of instability, a reverse split could still increase the value of AMC common stock shares. The CEO did not dismiss the idea but noted that it would require a shareholder vote. While that is true, it is likely that shareholders would vote in favor of any motion that helps boost AMC stock.
That doesn’t mean investors should disregard the bigger problems facing the company, though. It’s well known that AMC issued APE as a means of alleviating its excessive debt. This idea sounded good in theory but hasn’t yielded any positive results for investors since APE stock began trading in August 2022. B. Riley Securities analyst Eric Wold noted that both APE and AMC should trade at roughly the same amount, as they have “equal economic value and voting rights.” The clear price divergence that we’ve seen recently indicates that APE is an unstable investment and AMC stock isn’t much better. A reverse stock split won’t necessarily change that.
The Bottom Line
A reverse stock split would boost AMC, though it likely wouldn’t keep it up for long. The underlying reality is that the company is desperate for an actual growth catalyst. As InvestorPlace assistant news writer Eddie Pan recently noted, AMC’s latest innovation has been take-home popcorn bags. The company needs actual innovation if either stock is to keep rising and so far, that hasn’t been provided. This is a good reminder that stocks can’t demonstrate sustainable growth without actual catalysts. As InvestorPlace contributor Ian Bezek noted:
“Despite considerable trader enthusiasm around AMC stock, there’s simply no sign of a positive inflection point in the company’s operations.”
Bezek rated APE stock as a “sell” two weeks ago, before it slipped below $1 per share. Since then, things have only gotten worse for the company as a whole. The recent divergent price action is exactly what investors don’t want to see. While a reverse stock split may boost AMC, it still wouldn’t be the positive catalyst that the company needs to shake off this negative momentum.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.