AMC warns investors as it issues more shares

Cinema operator AMC Entertainment launched its second share issue in three days yesterday, while warning investors that after a week of stellar gains they risked losing their shirts if they backed the company at current prices.

AMC's stock, initially up more than 14 percent, fell back to stand roughly flat after the company announced it had agreed to sell up to 11.55 million of its shares from time to time at its discretion in an at-the-market offering program.

AMC's share price nearly doubled on Wednesday, a day after it issued 8.5 million shares to Mudrick Capital, which the hedge fund flipped at a profit.

A number of Wall Street analysts have said the company is already heavily overvalued and many institutional traders have said they were steering clear of the stock, the latest center of attention for a pack of small-time traders organized on Reddit and other social media platforms.

"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," AMC said in a statement.

Echoing a warning from regulators earlier this year, it added: "Under the circumstances, we caution you against investing in our Class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment."

The company said in January it had secured almost US$1 billion in new funding and cash from issues since mid-December, and it has continued with further issues since, even as analysts worried that it was massively overvalued.

David Trainer, CEO of investment research firm New Constructs said that the rise of streaming and stiff competition facing movie theaters meant the US economy's reopening is unlikely to boost AMC's performance.

"AMC's business was trending in the wrong direction even prior to the COVID-19 pandemic. We think AMC's stock is worth US$0 per share, given its weak earnings, dilution from recent stock offerings and mountain of debt."

But AMC shares have continued to gain as they were hyped online. The pack continues to urge small investors to buy and call options on certain "meme stocks," caring little about the companies' fundamentals.

Of other big recent "meme" plays, BlackBerry's US listing was up 19% before the bell, while GameStop Corp dipped 5% and Koss Corp shed 17%.

A short squeeze in GameStop in January triggered regulatory concern about the stability of brokers, with the National Securities Clearing Corp later applying to tighten rules on the deposits brokers are needed to post ahead of stock options expiry.