AMC, this summer’s blockbuster stock, warns of plot twists

The wild ride for the summer’s blockbuster stock, AMC, is getting even crazier

AMC, this summer’s blockbuster stock, warns of plot twistsBy MICHELLE CHAPMAN and STAN CHOEAP Business WritersThe Associated Press

Got your popcorn? The wild ride for the summer’s blockbuster stock, AMC, got even crazier on Thursday.

The movie-theater company’s stock plunged nearly 40% in the morning after it announced plans to sell 11.6 million shares to raise cash, while warning buyers they could lose all their money. But it erased the loss in just a few hours. After the stock sale was complete, it climbed above the record closing price it had set a day earlier, only to sink back to an 8% loss later in the afternoon.

It’s the latest stupefying, nearly unexplainable move for one of the “meme stocks” that have rocked Wall Street this year, Many professional investors say AMC, GameStop and other meme stocks have hit heights untethered to reality and are primed for a steep fall, but that’s not stopping an army of smaller-pocketed and novice investors from holding their ground and promising to take their prices “to the moon.”

For AMC, that so far has meant vaulting its stock price from below $2 early this year to the $50.85 average price that it sold shares for on Thursday. The surge means its total market value has climbed above $30 billion, putting it on par with bigger companies like AutoZone and Old Dominion Freight Line, which unlike AMC are making profits and didn’t have speculation of bankruptcy swirling around them last year after the pandemic shuttered theaters.

In a filing with regulators, AMC couldn’t give a reason for the rise in its stock price that’s tied to its profit prospects, the usual reason for a stock price to move. The company said it didn’t know how long the reasons behind its stock surge will last, while warning investors: “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 immediate reaction in the market was sour. AMC shares fell immediately after the market’s opening, and the plunge was so sharp that trading was temporarily halted three times during the morning. A day earlier, its trading had been halted four times when the stock was heading in the opposite direction and nearly doubled.

Any sale of stock by a company can hurt its share price, because it means investors already owning shares will automatically hold a smaller percentage of the business afterward. But AMC’s warning was particularly striking.

Other meme stocks also fell in the morning, including GameStop. It was the poster child for the meme-stock phenomenon early this year, when the struggling video-game retailer suddenly surged 1,625% in January. Back then, the maniacal moves for meme stocks shocked Wall Street, but many professional investors expected the fervor to peter out eventually.

Everyone agreed that a new generation of investors was seizing more power in the market, with their ranks growing because of easy-to-use trading apps and zero trading fees. But one big reason for the incoming wave of novices was that the pandemic had left them with little else to do.

When the pandemic eased, the thinking on Wall Street went, those traders would go back to eating out at restaurants, heading to bars and doing other things instead of talking up and bidding up meme stocks.

It didn’t play out that way, at least not yet. Meme stocks did lose some momentum following their January supernova, but they began soaring again recently. AMC quintupled in the two weeks through Wednesday, for example.

For their part, many retail investors said on the social media forums that have spurred the meme stocks’ moves that they’ll remain steadfast.

“We can stay irrational longer than they can stay solvent” was the title of one thread on Reddit’s WallStreetBets forum, which has been a central character in the rise of meme stocks.

Other users were asking if BlackBerry would be the next stock of a company overly maligned by professional investors to pop. The company’s stock careened from a 32% gain to a loss of 11% during Thursday morning trading. It was sitting on a slight gain in the afternoon.

They’re just the latest in a cacophony of crazy swings for meme stocks. AMC’s stock soared 95% Wednesday after it launched a program to share news with its massive base of retail shareholders. The new initiative will offer direct messages from the company’s CEO to retail investors, as well as offer free screenings, discounts and a free large popcorn this summer.

Just a day earlier, AMC’s stock jumped nearly 23% after it said it sold 8.5 million shares at an average price of $27.12 to a single investment firm, Mudrick Capital Management, which says it invests for “a diverse group of sophisticated institutions and individuals.”

The huge moves for meme stocks have caused some critics to warn of a dangerous bubble, citing investors taking excessive risks across financial markets after the Federal Reserve slashed interest rates to record lows.

One encouraging part of all this, though, is that the bubble behavior seems to be rolling through different investments rather than inflating the entire market, said Yung-Yu Ma, chief investment strategist for BMO Wealth Management.

He pointed to what are known as “blank-check companies,” which raise money and then hunt for companies to buy. Interest was exploding in these special-purpose acquisition companies early this year, but it’s fallen off recently. He pointed to a similar rise and fall for some of the more obscure cryptocurrencies.

“I wouldn’t say it’s healthy for the market, but it’s somewhat contained,” Ma said.

He thinks interest in meme stocks will likewise peter out, eventually.

“What happens is you get successive groups of investors that get burned with these things” after prices fall almost as quickly as they rose, he said. “Some people make money, but the ones late to the party get burned, and that’s a recipe for fizzling out eventually.”