AMC brief sellers dealt huge $1.2 billion blow after inventory rally

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Street performers in Minnie Mouse costumes pass outside an AMC movie theater in New York’s Times Square at night, October 15, 2020.

Amir Hamja | Bloomberg | Getty Images

Investors short of meme stock AMC Entertainment have lost an estimated $ 1.23 billion in the past week, as stocks are up more than 116% since Monday, according to S3 Partners.

The rally cooled off late Friday after AMC stock shot up as much as 38% in the early morning. Shares closed at $ 26.12 per share on Friday, down from $ 13.68 on Monday. At its peak, the stock hit $ 36.72 per share.

AMC was by far the most active stock on the New York Stock Exchange on Friday as more than 650 million shares changed hands. According to FactSet, the average 30-day trading volume is just over 100 million shares.

With 450 million shares outstanding, the entire company changed hands nearly 1.5 times during Friday’s trading.

So-called short coverage could add to AMC’s massive rally this week. The company has short about 20% of its outstanding shares compared to an average short 5% short sale of a typical US stock, S3 Partners said.

When a heavily short stock bounces up quickly, short sellers are forced to buy back borrowed stocks in order to close their short position and reduce losses. The forced buy tends to drive the rally even further.

AMC’s new private investors, who totaled 3.2 million, owned on the 11th. Their efforts, which soared in January, increased the stock from $ 5 to $ 20 per share and enabled AMC to reduce the debt burden by approximately $ 600 million to lower.

The retail investor agenda was to keep AMC alive and hold onto the hedge funds, an analyst told CNBC.

AMC’s stock has risen more than 1,100% since January has defied the forecasts of Wall Street analysts. AMC’s business was extremely strained. The company has roughly $ 5 billion in debt and has had to defer lease repayments of $ 450 million as its revenues largely dried up during the ongoing coronavirus pandemic. Theaters were closed for several months to stop the virus from spreading, and when the company reopened its doors, few consumers were comfortable attending screenings and film studios withheld new releases.

As the cinema business recovers, AMC continues to face strong headwinds. Although the company ended the first quarter with $ 1 billion in liquidity, the highest liquidity in its 100-year history, that cash will only keep it afloat until 2022 unless audiences return in droves Balance months with no income.

While early box office revenues are promising, fundamental elements of the cinema business have changed over the past year, including cinema capacity, shared release dates with streaming services, and the number of days that movies are shown in theaters.

“All that matters here in the long term is this company will never make money again,” said Rich Greenfield, co-founder of LightShed Partners, on Friday morning in CNBC’s “Squawk Box”. “You will never generate cash with your current capital structure. It was trading at seven times EBITDA before the pandemic. It is now trading at 25 times EBITDA and is now in a worse position in the changed industry. That simply contradicts all logic . “

On the last day of 2019, AMC had a market value of $ 751.87 million. On Friday, that figure was around $ 11.9 billion, according to FactSet.

– CNBC’s Yun Li contributed to this report.

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