What happened
Shares of AMC Entertainment (AMC -0.30%) are falling 5.3% at 11:02 a.m. ET on Tuesday as the meme stock rally over the past month or so continues to fizzle out.
Ever since AMC's preferred stock unit, AMC Preferred Equity (APE), began trading on the market, the common shares have lost more than a quarter of their value. The preferred shares have lost almost 28%.
Image source: Getty Images.
So what
Confidence in the movie theater operator is waning because it's clear more dilution is coming. APE was created specifically to get around the limitations AMC faced on raising cash by selling shares. Meme stock traders had also pinned hopes on the preferred units igniting a massive short squeeze, and now that it hasn't materialized, it's becoming more clear to many there's not much hope for a rally of any sort.
The common shares are still heavily shorted with over 17% of the stock sold short, but it's fewer than in more recent periods. And with a short interest ratio of just over three days, it's not likely a squeeze will occur (anything over seven days is considered a lot).
Now what
AMC Entertainment has a host of issues it must confront, not least of which is a heavy debt load of over $5.3 billion. As the Federal Reserve raises interest rates, the cost of borrowing is going to go up. And if Hollywood doesn't release some more blockbuster films like Top Gun: Maverick, it will suffer in attendance, which continues to trend below pre-pandemic levels.
Rival Cineworld was reportedly preparing for bankruptcy, and though AMC isn't about to follow suit anytime soon, the movie theater stock needs something more than buying defunct gold mines or issuing non-fungible tokens to reverse its trajectory. Unfortunately, there's nothing that suggests it's going to happen.
