If you enjoy action thriller movies, you may want to watch (but not necessarily own) AMC Entertainment Holdings (AMC 10.20%) right now. Shares of the multiplex operator are surging early on Wednesday, and it has a lot of the same ingredients that helped GameStop (GME 0.97%) spike in recent trading sessions.
Both companies lead in industries that have been widely written off by the general investing community, but a recent positive catalyst offers a spark of hope. Both stocks have large short positions. The most important ingredient of all, it seems, is the groundswell of support from traders in online threads cheering the stocks higher.
Is it going to be a Hollywood ending for the country's largest multiplex operator, or will this be a dud of a GameStop sequel? There are a couple of reasons the two stories may not play out the same, but it's too soon to spoil the plot twists. First you have to figure out why #SaveAMC is trending on Twitter before today's market open.
Image source: AMC Entertainment.
Director's cut
The SaveAMC hashtag was odd to wake up to on Wednesday. Didn't AMC already save itself on Monday when it announced that it had raised $917 million through new debt and equity over the six previous weeks? The exhibitor now has enough liquidity to take itself deep into 2021, and the CEO himself said bankruptcy is "completely off the table" now.
It doesn't take long to realize that #SaveAMC is trending because the hashtag is the rallying cry for traders hoping for another GameStop-esque run. GameStop has been a bottle rocket this month since announcing positive holiday sales and installing a few new activist directors on its board.
The long-term fundamentals remain stinky for both businesses. AMC has enough money to make it through the next few months, but there aren't too many people out there who believe we're going to return to our former multiplex-visiting ways at the other end of the pandemic. The trend was already waning before the COVID-19 crisis.
GameStop's long-term fate is also similarly vexed by a different digital migration. Its stores experienced a one-time positive hiccup on PlayStation 5 sales over the holidays, but those console buyers are going to be making a lot fewer in-store purchases of physical game discs than they did for previous platform generations.
The future is inevitably bleak on both fronts, but traders are more focused on the present. AMC and GameStop are Wall Street-banished investments with reasonable floats and enough naysayers to trigger a short squeeze.
Both stories will likely end badly, but the AMC thesis will probably fall short of GameStop's meteoric rise. GameStop had 71.2 million of its 69.7 million shares sold short ahead of the squeeze play. There were incredulously more wagers placed against GameStop than for the video game retailer earlier this month. AMC has a beefy 39 million shares shorted, but that's well shy of the more than 212 million shares it has outstanding -- and counting.
AMC is also more likely than GameStop to take advantage of its trading resurgence to crank out more shares at the higher price points. Unlike GameStop, which is still generating healthy gobs of free cash flow in its current state, AMC won't squander the opportunity to raise more money by issuing fewer shares as the upticks mount. AMC knows that all of this attention will be fleeting, so why wouldn't it strike while the Iron Man is hot?
Pass the popcorn, and watch the action play out from a cozy distance -- which means that like most former AMC regulars, you may want to watch this one safely from home in the new normal.
