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By Alex
Eule | Thursday, June 3 A
Bold Warning. The so-called meme stocks
had a rough day, and the negative sentiment might have just weighed on
the broader market. A day after nearly doubling, shares of AMC
Entertainment dropped 18%. Meanwhile, Bed
Bath & Beyond fell 28%, and GameStop shed 9%. BlackBerry managed
to post a small rise, on its heaviest
day of trading ever. The S&P
500 finished the day down 0.4%, while the Nasdaq
Composite dropped 1%. Somehow, the
2021 stock market continues to surprise. AMC announced this morning that
it would be selling 11.6 million new shares of stock. In the filing
announcing the stock sale, the company also issued a stark
warning: "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." (Yes, it was bolded
in the filing.) Basically,
AMC was selling shares while urging people not to buy them. It didn't matter.
Within hours, AMC had completed
the sale, raising $587 million at an average price of $50.85 a share.
Keep in mind that less than a month ago, AMC shares traded at $9. The
stock closed today's trading at $51.34, but during the day it traded as
high as $69 and as low as $38. I'd call it remarkable if GameStop trading
earlier this year hadn't already prepared us for such violent swings. AMC has now
raised $1.25 billion through the sale of stock since the start of the second
quarter. CEO Adam Aron said the funds are "substantially
strengthening and improving AMC’s balance sheet, providing valuable flexibility
to respond to potential challenges and capitalize on attractive opportunities
in the future.” Wall Street
is still trying to make sense of it all, a theme Connor
Smith has
been tracking in
recent weeks. Here's one example from Connor's
story today: David
Trainer, CEO of investment
research firm New Constructs, wrote that AMC’s business was trending in the
wrong direction before the pandemic. Since then, he noted that AMC has
diluted existing shares via millions in stock sales, adding that the stock is
worthless considering its debt load and weak earnings prospects. “The surge
in shares of AMC Entertainment is yet another sign of the reckless meme
stock-driven investing landscape that we find ourselves in today,” Trainer
said. “Wall Street insiders are preying on the naivete of retail meme stock
traders. There is no fundamental reason to be buying shares of AMC Entertainment.” But $587
million in new cash is pretty fundamental. The funds give AMC an
opportunity to make acquisitions or pay down debt. That's a big deal for
a company worried about its survival just a
few months ago. |
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DJIA: -0.07% to 34,577.04 The Hot
Stock: Ford Motor +7.2% Best Sector:
Consumer Staples +0.6%
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