What happened
Shares of movie-theater operator AMC Entertainment (AMC) are part of the recent rise in Reddit-inspired trades. After jumping another 30% at Monday's open, shares are trading 20% higher as of 9:35 a.m. EST.
So what
Robinhood and various brokers continue to impose trading limitations on AMC and other stocks due to surging volatility. It's clear the demand that caused shares to triple in just the last week continues as this trading week begins.
But the companies behind these momentum trades aren't the same. While GameStop may be a declining business, AMC is looking to recover from the impact of the pandemic, hoping that people will return to its theaters. It's a good time to look at the underlying business in the midst of this trading volatility.
Image source: Getty Images.
Now what
Prior to last-week's wild trading action, AMC announced it had raised $917 million in debt and equity since mid-December 2020. 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."
Two days later, the company announced a new equity offering raising another $305 million. That was smart for a company needing to strengthen its balance sheet, and it may mean the business will be able to rebound.
A look at valuation, however, shows that even with the stock getting back to pre-pandemic levels, the market capitalization has gotten way above those levels.
Investors who are buying today should realize that even if the business fully recovers, the Reddit-inspired move in shares isn't likely to hold for long.
