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Will AMC Feel the Pinch of Decreasing Profits?

Key Points
AMC shares surged up to 33% this morning due to recent headlines and a strong operating weekend.
AMC is currently facing two lawsuits, an upcoming annual meeting, and protests against the conversion of AMC Preferred Equity Units (APE) to AMC stock.
About 29% of AMC’s shares are held by short sellers, making it one of the top 10 most-shorted U.S. mid-cap companies.
5 stocks we like better than AMC Entertainment
Could the recent surge in AMC Entertainment Holdings Inc. NYSE: AMC stock be a preview of a short squeeze similar to last summer’s blockbuster?
Nearly eight million moviegoers visited an AMC Theater worldwide over the highly anticipated “Barbenheimer” weekend. It was the busiest extended weekend since 2019 for the movie chain operator and the second-largest sales haul for food and beverages. With high trading volume matching the strong theater attendance, AMC shares jumped up to 33% on Monday morning.
While the success of the “Barbie” and “Oppenheimer” films is a positive sign for AMC’s third-quarter financials, the company has also faced challenges leading up to the weekend.
On July 17, an AMC shareholder sued the company for delaying its annual meeting, which was last held in mid-June 2022. Though this had a minimal impact on the stock price, it brought attention back to AMC stock after a period of low activity.
A few days later, AMC announced the cancellation of a seat-based pricing plan that would have charged customers more for preferred seats and less for front-row seats. The failed pilot test of this idea led to a new initiative of front-row seats with extensive seat recline. This move did not inspire traders but reminded them of the unpredictable nature of the company’s leadership team.
What is the Status of AMC’s Stock Conversion Settlement?
One criticism of the lawsuit on July 17 was the frequent need for shareholders to resort to litigation due to poor corporate governance. The most recent lawsuit was brought by common stockholders to block the conversion of AMC Preferred Equity Units (APE) to AMC stock. AMC was sued in Feb. 2023 for allegedly manipulating a vote to convert APE into hundreds of millions of AMC shares.
Shareholders oppose this conversion as it would further dilute the already highly diluted stock, resulting from repeated new share issuances. There are now nearly 520 million outstanding AMC shares, five times more than three years ago.
Increasing the number of outstanding shares would reduce the claim each share has on the company’s earnings.
On Friday, a judge rejected a proposed settlement that would have allowed AMC to issue even more common shares through the APE conversion. The market reacted positively to this decision, causing AMC stock to rise by 70% in after-hours trading and APE shares to decrease. However, this settlement would have compensated AMC shareholders for the dilution with $129 million, but it would have unlawfully settled claims of APE shareholders who were not represented in the lawsuit.
AMC quickly made amendments to the proposal and filed an amended conversion settlement with the court on Sunday. CEO Adam Aron stated that the modification was made in collaboration with the plaintiffs, but further details are yet to be disclosed. He also emphasized that without the ability to raise new equity capital, the company could face insolvency or bankruptcy as early as next year.

What is the Short Interest on AMC Stock?
AMC traders are anxiously waiting for the next headline in the coming days. The timing of the judge’s decision is uncertain, but AMC is unlikely to proceed with its second-quarter earnings release until the matter is resolved. The company has also not announced an annual meeting date in response to the other lawsuit, which requested a meeting by August 18.
As everyone awaits these significant events, there is the potential for another short squeeze. Approximately 29% of AMC’s shares are held by short sellers. This places it among the top 10 most shorted U.S. mid-cap companies. Combined with the stock’s low price, negative Wall Street sentiment, and dedicated investor base, the conditions are favorable for a major squeeze.
Over the past two summers, there have been significant short squeezes, including a remarkable surge above $70 in June 2021. Investors may witness a similar event again. Before considering investing in AMC Entertainment, it’s worth looking into other options. MarketBeat keeps track of Wall Street’s top-rated and best-performing research analysts and the stocks they recommend to their clients. MarketBeat has identified five stocks that top analysts are recommending to buy now before the broader market catches on, and AMC Entertainment is not on the list. While AMC Entertainment currently has a “Reduce” rating among analysts, these top-rated analysts believe that these five stocks are better investments. View The Five Stocks Here. If you’re interested in investing in SpaceX, StarLink, or The Boring Company, click the link below to learn when Elon Musk will allow these companies to finally go public. Get This Free Report.

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