What happened
Is this the mother of all short squeezes that AMC Entertainment (AMC -3.25%) investors have been waiting for?
After another week of a rapidly rising stock price, shares of AMC were soaring 22.2% at 11:30 a.m. EST on Monday. The stock has now nearly doubled in just two weeks, and it has to be putting pressure on short-sellers, many of whom are likely moving to cover their positions.
Image source: Getty Images.
So what
AMC remains a highly shorted stock, with more than 20% of its shares outstanding sold short. What many of those traders didn't expect was for the movie theater operator to zig when they anticipated a zag. The announcement that AMC was buying a stake in a gold and silver miner threw conventional wisdom out the window and sent its stock off to the races.
Peter Lynch had a word for when companies went astray and acquired businesses far outside their circle of competence: de-worsi-fication. Precious metals mining has nothing to do with operating a movie house, but Hycroft Mining (HYMC -3.11%) was similar to AMC in one way: It was a cash-strapped business unable to raise money despite having potential for growth.
That was where AMC found itself when hedge funds were betting against it, and small retail investors rallied around the stock and have helped keep shares afloat. Now there might be no containing them if a short squeeze is at hand.
Now what
This isn't over. CEO Adam Aron says based on the reception his deal for Hycroft received, he's going to look for more "transformational" deals on which to spend his $1.8 billion war chest.
That likely helped spark this morning's rally, but whether turning AMC Entertainment into a conglomerate operating in disparate industries ultimately benefits movie theater investors in the long term remains to be seen.
