AMC Entertainment Holdings'(AMC +0.00%) stock is catching a ride to the moon on the back of a group of investors that discuss stocks on Reddit. The stock is up an incredible 2,800% year to date.
While the company's fundamental prospects are improving as more folks are getting vaccinated, the meteoric rise of AMC stock appears detached from fundamentals. Management addressed the issue on June 3, saying, "We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last."
Instead of focusing on company fundamentals, the group from Reddit is focused on forcing a short squeeze, where heavy buying activity in a stock counters those who are betting against (or shorting) the stock. Intentionally or otherwise, this tug of war achieved by Reddit investors has fundamentally helped AMC.
AMC stock is up more than 2,000% in 2021. Image source: Getty Images.
Buy and hold
The theater chain recently raised $587 million in cash by selling equity at an average price of $50.85 per share. If Reddit investors were not willing to buy and hold AMC stock, the company would not have been able to sell shares at such a high price.
However, management has nearly reached the maximum amount of shares it's allowed to sell to the public. To sell more shares, it needs to get approval from shareholders, which are now 80% individuals who own an average of 120 shares.
The company has been facing a liquidity crisis since losing billions of dollars during coronavirus shutdowns and could desperately use the cash an equity sale can bring. However, adding to the supply of AMC stock could hurt the cause of Reddit investors attempting to put on a squeeze.
Will it be enough?
AMC has over $5.1 billion in debt, the bulk of it coming due in 2026 ($3.7 billion), and smaller amounts due earlier, $558 million in 2023 and $618 million in 2025.
As of March 31, the company reported having $800 million in cash and has since raised $1.2 billion, bringing its total cash on its balance sheet to an estimated $2 billion. However, the company is still burning through $120 million per month.
With states easing business restrictions and studios releasing feature films to the big screen again, the business is improving. Still, the positive effect has yet to be observed in the company's financial statements.
Meanwhile, expenses that were deferred in 2020 are starting to come due in 2021. This is what management said on the matter in its most recent quarterly statement:
Commencing in 2021, the Company's cash expenditures for rent are scheduled to increase significantly as a result of rent obligations that had been deferred to 2021 and future years that were approximately $473.0 million as of March 31, 2021. In light of the Company's liquidity challenges, and to establish its long term viability, the Company believes it must continue to reach accommodations with its landlords to abate or defer a substantial portion of the Company's rent obligations, in addition to generating sufficient amounts of liquidity through equity issuances and the other potential financing arrangements discussed below.
To put those figures into context, AMC generated operating profits of $209 million, $310 million, and $236 million in the three years prior to the pandemic. It's probably possible to survive without the help of the Reddit crowd, but it would be a lot easier if it maintains its support.
