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Stock Market Wrap-Up: This Pot Stock's 1,000% Share-Price Rise Isn't Good News

By Dan Caplinger - Updated May 11, 2020 at 5:44PM

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Stocks were mixed, but good news in the movie industry got a favorable reception on Wall Street.

The stock market put in a mixed showing on Monday, with most benchmarks bouncing back from early losses to end the day in the black. Market participants are still uncertain about what the next several months will look like for the global economy, especially as some state and local governments roll the dice and try to return to normal. The Dow Jones Industrial Average (^DJI -0.42%) wasn't able to get out of the red by the end of the day, but the S&P 500 (^GSPC 0.16%) and Nasdaq Composite (^IXIC 0.00%) posted modest gains.

Today's stock market


Percentage Change (Decline)

Point Change




S&P 500



Nasdaq Composite



Data source: Yahoo! Finance.

Some investors who are interested in cannabis must have wondered if they were under the influence Monday morning when they saw the share price of Aurora Cannabis (ACB 0.74%) rise by 1,000%. But unfortunately, there's an explanation why that move isn't such a big deal. News from beleaguered movie theater operator AMC Entertainment Holdings (AMC -5.54%) was the real deal, however, with the potential for an opportunistic strategic move establishing the long-term value of the company.

A higher stock price, but fewer shares

Aurora Cannabis saw its stock price close at $7.42 per share on Monday. That was up from the reported close of $0.67 per share last Friday, but most news outlets reported the day's move as a decline of 8%.

Marijuana leaf on top of a pile of $100 bills.

Image source: Getty Images.

The explanation is simple: Aurora approved a reverse stock split earlier this year, to reduce its number of shares outstanding in order to boost the share price. With the pot stock having traded below the $1 level for a couple of months, Aurora faced the unpleasant prospect of having its shares delisted from the New York Stock Exchange if it didn't take drastic action.

The cannabis company decided to go with a 1-for-12 reverse split. That means that somebody who owned 3,000 shares of Aurora stock last Friday worth about $2,000 found themselves with just 250 shares of stock today. That's why even at $7.42 per share, Aurora's price was effectively down, since those 250 shares were worth just over $1,850.

Aurora might not be the only pot stock that resorts to a reverse split in the near future. For now, though, investors simply need to understand that today wasn't a time to celebrate, and that further share-price declines could lie ahead.

Will Amazon buy AMC?

Elsewhere, shares of AMC Entertainment Holdings soared 30%. Even though the theater chain has struggled badly during the coronavirus pandemic, reports that e-commerce giant (AMZN 3.60%) might be looking at an acquisition of AMC helped give shareholders some hope for the fate of their investments.

Reports of talks between AMC and Amazon sparked speculation about what a combination would mean. Just as Amazon moved beyond its online marketplace to incorporate brick-and-mortar stores when it bought out Whole Foods Market, buying AMC would give Amazon a captive real-world presence for its budding entertainment content business. That could prove useful, especially if a combined theater and home-viewing approach can woo customers away from other streaming services to Amazon Prime Video.

Yet with AMC in such dire financial straits, it's uncertain that Amazon would be interested in offering particularly good terms to shareholders. Moreover, there'd be considerable regulatory scrutiny of a deal, especially given the challenges of AMC dealing with a parent company that produces content while still providing a forum for rival studios to show their movies as well.

AMC investors are hopeful that even if Amazon doesn't consummate a buyout, the report could lead to another suitor making a move. At this point, AMC's running out of time, so any news is good news.

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Stocks Mentioned, Inc. Stock Quote, Inc.
$113.50 (3.60%) $3.94
AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
$12.78 (-5.54%) $0.75
Aurora Cannabis Stock Quote
Aurora Cannabis
$1.36 (0.74%) $0.01
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$30,967.82 (-0.42%) $-129.44
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,831.39 (0.16%) $6.06
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$11,127.85 (0.00%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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