AMC Entertainment stock’s price was halved from its high this month amid a major loss in meme stocks as the reality of bubble rallies and failing companies became apparent to Reddit-obsessed investors.
The cinema chain’s stock fell 15% to $ 33.43 apiece on Wednesday, less than half of its all-time high of $ 72.62 in early June. The decline brought the month-to-date losses to 41%. GameStop, the original Meme stock king, is down more than 21% this month, while newcomers Clover Health and Clean Energy Fuels are down 34.8% and 22.6%, respectively, in July.
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While the pullback doesn’t make a big dent in their monstrous 2021 rallies, it could be a sign that investors have lost patience and are rushing to the exits as the AMC and GameStop turnaround plans have been too short for many. Meanwhile, their recent share sales have also severely diluted existing shareholders’ ownership.
“Although the prices of these assets have fallen rapidly, their levels are still historically high, which could cause further pain in the future,” said Maneesh Deshpande, Barclays head of US Equity Strategy and Global Equity Derivatives, of meme stocks in a note .
AMC stock is still up more than 1,400% year-over-year, and GameStop is rallying over 780% in 2021. Most of the massive profits came from a group of retailers coordinating trades in Reddit’s WallStreetBets chat room to squeeze out short sellers. The rally drove GameStop onto the Russell 1000 index of large-cap stocks from the small-cap Russell 2000.
While short sellers betting against these meme stocks have suffered huge losses earlier this year, they are not giving in. In fact, short-term interest in many of these speculative names has increased in recent weeks, according to data firm S3 Partners.
AMC shorted 13.8% of its float stocks after short stocks rose 6.2% last week, S3 data said. Short interest in GameStop rose 9.4% to 13.3% over the past week, according to the data.
‘A little hope’
AMC tabled a proposal last week that would have asked its shareholders to allow the company to issue up to 25 million more shares. The decision followed a series of equity issues in the second quarter that raised AMC $ 1.246 billion in total.
Still, according to an estimate by Loop Capital Markets, AMC is heavily leveraged with net debt of $ 4.5 billion and deferred rents at the end of the year.
“AMC has little hope of gaining significant market share and has to pay cash for acquisitions, debt settlement and board compensation,” said Alan Gould, an analyst at Loop Capital, in a press release.
For GameStop, the video game retailer raised approximately $ 1.7 billion in recent stock sales to use the proceeds to accelerate its e-commerce transformation. The company announced two high profile new executives at Amazon last month. Still, many remained skeptical of GameStop’s ambition to revive its business.
“Big Short” investor Michael Burry told Barron’s this month that he believes meme stocks will crash like the dotcom and real estate market bubbles of decades past.
None of the Wall Street analysts covering AMC and GameStop have a buy rating on the stocks, according to FactSet.
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