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Anyone tempted by
stock’s wild trading this week may want to take a look at what the company has to say.
In a filing with the Securities and Exchange Commission on Thursday, AMC (ticker: AMC) disclosed a plan to sell 11.55 million shares at market prices. The company sold the shares at an average price of $50.85. But the initial filing also included a warning from the company regarding the recent volatility in AMC’s stock price. The company believes the recent run-up in its stock price—the stock traded as low as $37.66 and as high as $68.50 on Thursday alone—could reflect market factors unrelated to its business prospects.
“Under the circumstances, we caution you against investing in our Class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment,” the company said in the filing.
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The warning from AMC was notable to some. Bespoke Investment Group’s Paul Hickey wrote, “Did Yogi Berra write the offering documents?” referring to the former New York Yankees catcher who had a knack for contradictory quips.
“When a company files to sell more than 11 million shares of stock, you wouldn’t expect to see the above statement connected to the offering,” Hickey wrote.
AMC stock was fluctuating between gains and losses Thursday afternoon. In online forums, some users doubled down on their enthusiasm for AMC, noting that
stock experienced similar volatility during its January rise.
The company also said in the filing that it will seek shareholder approval to authorize additional share sales at its annual meeting on July 29. The amount will be in a quantity significantly smaller than a previous request to authorize 500 million shares for issue that was later withdrawn, according to the filing.
Macquarie analyst Chad Beynon sees the rally and related offerings as a chance to improve AMC’s balance sheet and capitalize on what he calls the recent Reddit-mania.
“In our view, additional capital raising should be viewed as a positive if allocated in the right place, like debt reduction or paying down deferred rent, but we acknowledge that shares are no longer trading off of fundamentals,” Beynon wrote in a note Thursday.
Beynon rates AMC stock at Neutral and has a $6 price target on it, though he wrote his estimates are under review. He called recent efforts by AMC to lean into its large following of retailer traders helpful. The company announced a program on Wednesday that gives shareholders rewards and a more direct line of communication with AMC.
Some of those retail traders on social media sites see the stock as a moral battle with Wall Street insiders. The stock has drawn a large amount of interest from short sellers, who were down about $3 billion on bets against AMC and GameStop on Wednesday alone. Retail investors hope to prompt a bigger short squeeze, forcing hedge funds to buy the stock to cover their bets, which would drive prices even higher.
That said, investors should keep in mind that stock sales dilute existing shares and provide a larger cushion for short sellers to cover.
Whatever the reason for owning AMC stock, investors should risk only what they can afford to lose, as AMC itself cautions.
Write to Connor Smith at connor.smith@barrons.com
