What happened

Movie theater operator AMC Entertainment Holdings (AMC 4.42%) just had one of the most unusual years in the history of public companies. First, the pandemic shut down virtually its entire business operation. Then as the company raised capital to at least temporarily stave off bankruptcy, the stock became a favorite of Reddit-based retail traders who drove the share price up beyond what most analysts consider reasonable. But AMC management pivoted to take advantage of its popularity -- and high share price -- to attempt to turn the business around. Investors and traders continue to reward it, and the share price soared 117% just in the month of June, according to data provided by S&P Global Market Intelligence.

So what

The initial frenzy in AMC stock earlier this year appeared to resemble the greater fool theory of investing, rather than any true valuation growth of the underlying business. But CEO Adam Aron is taking full advantage of the meme stock's popularity by engaging with retail investors, who Aron says now represent more than 80% of the shareholder base.

Stock chart with rocket ship at the end of the chart.

Image source: Getty Images.

The company launched a program called AMC Investor Connect in early June that is specifically designed to turn those shareholders into customers. The company says the platform is meant to be a direct communication conduit with its "extraordinary base of enthusiastic and passionate individual shareholders." The company is also reaching out through its AMC Stubs membership program, which could help grow its on-demand streaming offering.

Now what

The efforts to turn shareholders into customers comes after the company has used the rising share price to raise billions of dollars in fresh capital. In just the past year, the share count soared by 360% as AMC sold new shares at higher and higher prices. 

AMC Chart

AMC data by YCharts

In the first half of 2021 alone, the company raised about $2 billion dollars in new equity and debt. AMC has said it will use the additional funds to reinvest in its theaters and potentially to acquire new locations to grow its footprint. 

AMC now has a market cap of $26 billion. The current business is worth nowhere near that much. The company reported negative free cash flow of $325 million in the most recent quarter ended March 31. Even as the economic recovery continues, theaters now will also have to compete with streaming services as some movie releases either bypass theaters or are released online at the same time they arrive in theaters. But management is doing many things right under the current circumstances. Investors who truly believe in the worth of the business will need to monitor whether future investments pay off, and see if the underlying business can make the turnaround the current share price implies.