Reddit investors rise, the group that shorted a meme stock lost more than 1 billion USD in the past week

The rally cooled down at the end of the session on May 28, before AMC stock jumped up to 38% at the beginning of the session. The stock closed at $26.12, up from $13.68 on Monday, to a high this week of $36.72.

At the end of 2019, AMC’s market capitalization was 751.87 million USD. As of Friday, that number was about $11.9 billion, according to FactSet.

Over the past week, AMC has been the most actively traded stock on the NYSE, with more than 650 million shares changing hands. The 30-day average trading volume is more than 100 million shares, according to FactSet. With 450 million shares outstanding, trading volume was nearly 1.5 times higher than the company’s entire stock on Friday.

AMC’s rally this week was driven by “short covering” transactions. 20% of the company’s outstanding shares are shorted, while the average short sale rate for a common stock in the US is 5%, according to S3 Partners.

When a shorted stock rises rapidly in price, the short seller is forced to buy back the shares to close the short position and cut the loss. Therefore, “squeezing to buy” can promote a stronger uptrend.

AMC announced earlier this month that new retail investors were holding about 80% of the company’s 450 million shares outstanding as of March 11. Thanks to their push, in January, the movie theater chain’s stock jumped from $5 to $20 and helped ease its $600 million debt.

The goal of retail investors is to help AMC survive and limit the stock “falling into the hands” of hedge funds, one analyst said.

AMC stock’s rise of more than 1,000% since January was beyond Wall Street analysts’ expectations, because its business was struggling. This company has about 5 billion USD in debt and nearly has to pay 450 million USD in rent when most of its revenue is “drained” during the time of Covid-19 raging.

AMC cinemas have been closed for months. But when it reopened, few customers felt comfortable coming to the service, and studios also stopped releasing new movies.

As the theater business is recovering, AMC still faces major problems. While it ended the first quarter with $1 billion in liquidity – the largest amount in the company’s 100-year history, it will only last until 2022, unless customers return in large numbers. large to make up for many months of zero revenue.

While the movie business appears to be promising, the fundamentals of the industry have changed in the last year, including theater capacity, the distribution industry that coincides with streaming services, and the number of the date the film was shown in theaters.

Rich Greenfield, co-founder of LightShed Partners, said: “The important thing here is that in the long term, this company will not be able to make money anymore. They will never generate cash with the current capital structure. This stock was trading at 7x pre-pandemic EBITDA and is currently 25x, while business is getting worse.”