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Why AMC Stock Jumped Again Today -- and When It Might Drop

By Howard Smith - Jan 29, 2021 at 10:16AM

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Shares are back trading on Robinhood Friday morning.

What happened

Shares of beleaguered theater operator AMC Entertainment Holdings (AMC -8.03%) popped another 85% at the market open Friday and had settled back to a 58% gain at 9:55 a.m. EST. 

The Reddit user rally continues after Robinhood opened trading back up on several highly volatile names involved in the ongoing short squeeze phenomenon. 

So what

AMC tried to take advantage of the share price momentum earlier this week by raising more than $300 million selling stock at a share price of $4.81. That may have seemed a good move at the time since the stock had more than doubled from two weeks before. 

But the irrational moves in the Reddit-related names helped drive shares to almost $20 per share by Wednesday, after AMC's capital raise. Now Reuters is reporting that AMC is debating another capital raise as the stock trades near $13 per share. 

Fiery arrow zigzagging upward.

Image source: Getty Images.

Now what

As recently as Monday, the theater operator told investors it had raised $917 million in debt and equity since mid-December 2020, as the company continues to struggle with theater closures, restricted capacities, and film release delays. AMC president and CEO Adam Aron said in a statement Monday, "This means that any talk of an imminent bankruptcy for AMC is completely off the table."

But the stock has tripled this week amid the short squeeze action. It would make sense for it to raise all the capital it can in this environment. Traders trying to get in on the action should be very careful as the greater fool theory plays out. If AMC does price another share offering, it will show that even the company doesn't believe the current bloated valuation is real and lasting. 

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