Whatâs Going On Here?AMC Entertainment hit a nearly $30 billion valuation early on Thursday, making the theater chain superstar bigger than half the companies in the key US stock market index. What Does This Mean?AMCâs stock is up around 400% this week and over 2,800% this year alone, but itâs hard to put this rally solely down to Redditors (tweet this). The bigger a company, after all, the tougher it is for retail investors â whose wallets are a lot smaller than their institutional counterpartsâ â to influence its value.
Then again, they do have the means to tussle with the heavy-hitters: retail investors have leverage and call options at their fingertips, both of which amplify the impact of small bets. And given how quickly âshort sellersâ â investors betting AMCâs price will fall â were losing money earlier this week, they mightâve raced to buy shares in hopes of reversing their bets and limiting their losses. That, in turn, wouldâve pushed AMCâs stock even higher. Why Should I Care?For markets: AMC is making hay while the sun shines.
AMC has been taking full advantage of the hype around its stock: the companyâs been selling new shares at their recently bolstered price, and it just announced itâd be selling almost 12 million more in due course. And you canât exactly blame the firm, which has been hemorrhaging cash since the pandemic forced its theaters shut. Now that its coffers are refilled, though, it should be better able to bounce back as things reopen.
Zooming in: AMCâs valuation is hard to justify.
AMCâs shares are currently trading for approximately 12 times next yearâs forecasted sales, compared to US rivals Cinemark and IMAXâs 3 and 5 times respectively. But that lead probably isnât sustainable: Goldman Sachs said on Wednesday that the short-term boost from a recovery has already been factored into cinema stocks, and that the acceleration toward streaming platforms will crimp earnings in the longer run. | 