Investors who have stuck with AMC Entertainment (NYSE:AMC) have certainly had most of the fun taken out of their investing journey over the past couple of years. However, over just the past week, shares of AMC stock have been hit especially hard. Today, AMC stock is down another 18% and has been halted multiple times for volatility.
These halts resulting from outsized volatility appear to be tied to the upcoming planned APE conversion later this week. Additionally, AMC is planning a 1-for-10 reverse stock split on Thursday. Combined, these moves will allow for AMC to “issue a few hundred million new shares to raise capital — a prospect for dilution that is applying heavy downward pressure to its stock price.”
Let’s dive into what investors may want to make of AMC’s price action of late.
AMC Stock Sinks Yet Again as Investors Have Little to Be Optimistic About
The story of a resurgent theater chain moving toward profitability and brighter days ahead appears to have faded for AMC. Today, all investors can seemingly talk about with the company is its dire financial backdrop and dim outlook for long-term growth.
The financial moves made by AMC management during its meme stock mania largely saved the theater chain from bankruptcy. However, the question is whether the capital the company raised during that time will be enough to propel it forward or just postpone the inevitable. Investors appear to be betting on the latter, with more dilution expected ahead.
AMC’s balance sheet remains in shambles due to the pandemic and secular headwinds created by streaming services. Folks just aren’t visiting movie theaters like they did before. And, while some recent blockbusters have provided movie enthusiasts with reasons to be excited, it may simply be too little too late for AMC stock investors.
Ahead of this week’s reverse split and preferred share conversion, I think the market is right to be very nervous. This is a stock that never should have soared as high as it did a couple years ago. While it took time for reality to kick in, this is likely where shares should have traded before.
On the date of publication, Chris MacDonald did not hold (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.
