AMC Entertainment, the movie theater chain-turned-surging meme stock, has been cashing in on its unlikely rise. Since its stock started climbing at the end of January, the company has issued more than 100 million shares, unlike fellow internet darling GameStop, which has largely held off on selling new stock.
Issuing new stock generally dilutes the value of a share, and is typically done when a company thinks its shares are overpriced. But so far, AMC’s stock price hasn’t really been hurt.
In the last few weeks, AMC surpassed GameStop in market capitalization, the value of its outstanding shares, which shot up from around $5 billion at the start of April to a high of $34 billion last week. In that time, GameStop’s market cap also grew, but less exuberantly, from around $13 billion to peak at $19 billion in June.
AMC issues more shares
After riding the internet hype train to a new high of $62.55 a share last week, AMC told regulators that it would sell an additional 11.6 million new shares, even as it warned traders not to buy its common stock “unless you are prepared to incur the risk of losing all or a substantial portion of your investment.” Although AMC stock had fallen to $47.91 by the end of the week, today it shot up by 14% to $55 per share, showing that at least for now, the sell-off hasn’t had a major impact. After all, AMC was trading for less than $2 per share in January.
AMC also plans to ask shareholders to approve a change to its corporate charter that would allow it to issue another 25 million shares.
Since GameStop became a headline-grabbing meme stock in early January, the company has only issued 3.5 million new shares of its stock, and it did so in April, once the stock appeared somewhat more stable.
Kelly Shue, a finance professor at the Yale School of Management, said that in issuing a significant amount of additional shares, AMC is following a “more standard corporate finance strategy” than GameStop. “When the GameStop share price was very high and it was the main hot meme stock, I think most corporate finance professors would’ve said, ‘Oh GameStop should issue more shares.’ And they actually chose not to really do that much,” Shue said. “Whereas AMC is very much following the standard playbook.”
For what it’s worth, GameStop’s stock has done just fine since its April issue, which raised $551 million. GameStop shares are up above $280 per share, still down from a January peak of $347 per share, but meteorically higher than the $4 per share at which it was trading last June.
But neither of these stocks are at all predictable. Both companies are operating in a very volatile environment and their share prices are not necessarily tied to fundamentals. Whether or not those prices maintain their lofty levels, the movie theater chain will have capitalized on its moment in the sun.