AMC Surges 2900% This Year Alone... Meme Stock Frenzy (Comprehensive)

Expert: "Emergence of New Investors Cannot Be Explained by Existing Theories"

[Image source=AP Yonhap News]

[Asia Economy Reporter Kim Suhwan] On the 2nd (local time), AMC, a U.S. movie theater chain, closed at $62.55, up 95.22% from the previous trading day on the New York Stock Exchange. This is more than three times the peak of $19.90 reached during the GameStop incident last January. It has surged 2850% just this year.

On the same day, meme stocks saw an upward trend, with GameStop rising 13%, Bed Bath & Beyond up 62%, and BlackBerry increasing 32%. Bloomberg reported, "The meme stock craze is back. Stronger than ever."

The sharp rise in AMC’s stock price was due to AMC’s announcement that it would offer various giveaways such as free popcorn and special screenings to encourage individual investors to invest.

It is known that individual shareholders currently account for 80% of AMC’s shareholders, and it is claimed that their actions drove the stock price up.

During the GameStop incident last January, the power of numerous individual investors, including the U.S. Reddit community WallStreetBets, was also at work.

They targeted stocks with a high short-selling ratio, but contrary to the expectations of short sellers betting on price declines, individual investors flocked to the stocks, causing prices to rise. Short sellers, aiming to minimize losses, repurchased stocks to close their positions, which led to a stock price surge.

AMC’s short-selling ratio is 20% of total trading volume, significantly exceeding the average short-selling ratio of 5% for U.S. companies.

After AMC succeeded in the largest-ever rights offering in the first quarter, individual investors expecting improved profitability began to flock in. Consequently, short sellers also bought stocks to reduce losses, causing the stock price to rise 116% just last week. CNBC reported that short sellers suffered losses exceeding $1.2 billion.

Previously, many experts dismissed this meme stock craze as a temporary phenomenon and analyzed it as stock price fluctuations caused by some irrational investors.

However, as signs of a recurrence of the GameStop incident within six months emerge, some analysts argue that a new type of investor has appeared.

[Image source=Reuters Yonhap News]

Jim Cramer, a well-known analyst on CNBC, said, "This is a phenomenon that cannot be explained by existing theories," emphasizing that it is time to view meme stocks from a new perspective.

He diagnosed, "For young investors represented by Reddit, stock valuation or corporate financial evaluation is not important," adding, "They simply buy stocks because they ‘like’ them." This suggests a large influx of new investors who deviate from the traditional investment method of carefully analyzing corporate financials and growth potential before trading stocks.

Meanwhile, amid the ongoing COVID-19 pandemic, AMC’s profit outlook remains bleak. With theater attendance still not recovering to pre-pandemic levels, local analysts predict AMC will incur losses close to $100 million over the next 12 months, Bloomberg reported.

Additionally, AMC’s debt has nearly tripled from $2 billion in 2016 to $5.4 billion. As a result, AMC’s target stock price remains at $5.11, about 10% of the current stock price level.