Please ensure Javascript is enabled for purposes of website accessibility

Here's Why AMC Stock Crashed Today

By Joe Tenebruso - Jun 3, 2021 at 5:05PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company continues to dilute its investors' ownership stakes.

What happened 

Shares of AMC Entertainment (AMC 8.03%) plunged on Thursday after the theater chain announced another stock sale. By the close of trading, AMC's stock price was down more than 20% after falling as much as 40% earlier in the day.

So what 

Prior to today, AMC's shares had soared from $12.08 on May 21 to $62.55 on June 2, fueled in part by the aggressive promotion of its stock on Reddit and other social media sites. Management, in turn, decided to cash in on the opportunity.

AMC sold 8.5 million shares of its stock to investment firm Mudrick Capital Management for $230.5 million earlier this week. AMC said it would use the funds to pay down debt and upgrade its theaters, as well for potential acquisitions. 

A downwardly sloping stock chart.

AMC Entertainment's shares fell sharply on Thursday. Image source: Getty Images.

Today, AMC said it sold another 11.6 million shares to investors for roughly $587.4 million. CEO Adam Aron said the newfound cash would help to bolster AMC's balance sheet and provide "valuable flexibility to respond to potential challenges and capitalize on attractive opportunities in the future."  

Now what 

Although these share sales will place AMC on firmer financial footing, they come at the cost of significant shareholder dilution. AMC's business was already struggling before the pandemic. Following a series of stock offerings in recent months, AMC's now much higher share count will make it even more challenging for the theater chain to generate enough per-share profits to justify its current lofty valuation.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
AMC
$23.96 (8.03%) $1.78

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
377%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.