AMC Entertainment Stock: Should you buy or let it pass by?
After seeing the recent drama about AMC Entertainment stock, you may have wanted to invest too. It’s an unusual mix of silly internet jokes and a shaky theatrical exhibition company. If you look closely, though, you’ll find a more serious trend brewing in the market.
First, let’s get up to speed with AMC Entertainment stock and Reddit investors. Later, we’ll discuss whether or not short selling is as awful as people often think. More importantly, we will explain why you may want to look at other stocks instead of AMC.
A mix of the pandemic and mobile investment app led to the revival of AMC Entertainment stock. As we talk about this, you’ll see how people online are making waves in the market. Learning about such trends will help you choose investments in the new normal.
What happened to AMC Entertainment stock?
AMC Entertainment Holdings, Inc. started as a family business. Stanly Durwood wanted to own more cinema theaters. So he ended up creating the first multiplex theater in the world.
Adam Aron became its President and CEO in 2016. Eventually, his company grew into the biggest theater chain worldwide. Sadly, the pandemic became a huge obstacle to its growth.
Most countries imposed lockdowns to prevent the spread of COVID-19. This meant people are spending more time indoors and less in movie theaters.
As you can see, this caused the company to suffer huge losses. It reported a staggering loss of up to $4.59 billion for the whole of 2020. In response, short-sellers saw an opportunity.
It was common for hedge funds as a way to build capital. Their trading method allowed them to earn as the stock was losing value. In this case, White Castle Capital was involved.
Deep in Reddit, a person with the name Roaring Kitty rallied fellow investors. He grew tired of the rich getting more money from failing companies.
They simply bought Gamestop, AMC, and other stocks and held them. As they did this, their prices went up. That’s why the short-sellers suffered huge losses.
This means a win for the public and the stock market, right? Well, not so fast! Eventually, White Castle Capital had to close down because of this.
What is short selling?
If you’ve only read about short selling now, you may think it’s bad. You might be thinking it profits off struggling companies. But how does it work, though?
Short selling involves borrowing an asset then reselling it once the price drops. This allows investors to earn from the difference in the buy price and sell price.
Here’s a quick rundown of how short selling works. We’ll use “CMA stock” as an example for the steps below:
- A short seller may borrow ten or more shares of CMA stock.
- The person then sells them for $500.
- Let’s say the CMA stock price drops.
- The short seller may now buy ten shares of CMA stock for $400.
- As a result, the person pockets $100.
If you noticed, a short seller needs the price to fall. Otherwise, the person loses money instead. Rich investors usually take advantage of this during economic downturns.
People from Reddit knew this too. To them, the short sellers were cruel to profit from a crumbling company. But is there more to this risky trading method?
What’s the point of short selling?
Contrary to popular belief, short selling has two important uses. First, it lets investors have a sort of “insurance” for investment managers. It lets them earn while the market isn’t doing well.
Second, it reveals shares that are doing poorly in US markets and international markets. If a company has many short sellers, this could mean it’s not performing well.
What’s more, the short-sellers may look into why the company is failing. It may shed light on its poor management or its shady practices.
As a result, investors can steer clear of these bad investments. They get to add better options to their portfolios. It may even urge failing companies to deal with their problems.
Why you shouldn’t buy AMC Entertainment stock
This should have worked especially well for AMC Entertainment stocks. It was a meme stock, an asset with a value boosted by online forums and posts.
Some experts consider them overvalued. This means their price is beyond their actual worth. In this case, its value rose after an online movement sparked.
These are a far cry from how the actual company is doing. It still hasn’t recovered from the pandemic. Before that, it owed $4.7 billion on its balance sheet while it only had $265 million in cash.
To solve its liquidity problem, it should fill its theaters by around 85% by the 4th quarter of 2021. That’s unlikely since many people have gotten used to online streaming indoors.
Here’s another big reason why you shouldn’t buy AMC Entertainment stock right now. The company itself warned that investors could lose a lot of money!
It announced that it had completed a share offering recently. The company raised $587.4 million in capital from this move. It wanted to profit from the recent spike in stock price.
Altogether, these factors send a bright red flag to investors. You’re probably better off putting your money in other stocks or asset classes.
Cryptocurrency is one of the best investments right now. More companies and countries are adopting them. As a result, they have a bigger chance of yielding huge returns!
What’s more, it lets you try short selling by yourself. The crypto market is turning up right now. However, you may find a failing coin that’s worth shorting.
Please note that short selling is a highly risky method. It’s even riskier for cryptos. If you’re not careful, you may lose lots of money. Always research before investing.
Learn more about AMC Entertainment stock
What is happening with AMC stock?
A few months ago, online forums boosted AMC Entertainment’s stock. Recently, it released a share offering that raised $587.4 million. That’s why it’s warning investors about losing money.
Is AMC a buy now?
It’s best to stay away from AMC stock right now. The company is not likely to recover from the pandemic. Instead, consider other options such as cryptos.
Does AMC owe money?
The company went into 2020 with around $10.35 billion in debt. Since then, the balance just kept building up. It’s not likely to repay these even after the pandemic.
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