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Here's Why AMC Stock Crashed Today

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

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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.

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AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
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