Stocks increase in price when the company’s business is favorable has become an almost constant rule. On Wall Street, however, there are businesses with losses piling up, but stocks still explode, even at a rate of thousands of percent, in just a few months.
Such irregular gainers have become a phenomenon in the US financial markets this year, including names such as car rental company Hertz, game retailer GameStop, Cybersecurity and software company BlackBerry, and most recently the movie theater chain AMC.
These are all small- or medium-cap companies, facing many difficulties in business, and some stocks are sold short by large hedge funds but are bought by large numbers of investors. Personal investing on the WallStreetBets forum on Reddit.
Tiny confronting giant
Revenue and earnings, on one hand, stock price movements on another, outlook unclear, such stocks cannot be classified as growth stocks or value stocks).
Instead, these stocks were grouped into a new group called “meme stocks” – “joke stocks”. The common point of meme stocks is that they are extremely speculative, can go up and down in price by several tens of percent in a single trading session, and are often valued much more than their true value.
Meme stocks are especially favored by young investors of the Millennials (born between the 1980s and 1990s) and Gen-Z (born between the 1990s and 2010s), which do not have a lot of capital and experience but do not have a lot of experience. excess appetite for risk.
These investors have made waves in global stock markets in 2020, as the pandemic has caused many of them to lose their jobs or stay at home more than before. With plenty of free time and the backing of low-fee stock trading platforms like Robinhood, they rushed into the market and made it.
Earlier this year, GameStop stock was seen as a symbol of the wave of meme stocks and individual investor power on Wall Street. Recently, this position was ceded to AMC stock.
According to data from TradingView, from the beginning of the year to the end of the trading session on June 4, AMC shares increased by about 2,160%, reaching $47.9/share, from $1.4/share at the beginning of the year. In the session on June 2, there was a time when AMC shares increased 120%, then closed the session with a gain of 95%. Session on June 3, this stock fell 20% again.
Similar to GameStop stock, AMC stock once again reflects the strength of individual investors in the face of the hedge funds. While funds with huge financial potential short-sell such stocks, individual investors on Reddit are flocking to buy.
The power of the masses has pushed stock prices up – contrary to the desire of short-sellers who wait for stock prices to fall to make a profit. When the stock price rises to a certain level, funds must buy to close the short position if they do not want to incur further losses. This makes the stock price increase more than twice as fast – a phenomenon also known as “short-squeeze.”
The seemingly invincible hedge funds on Wall Street have “burnt hands” in the confrontation with the individual investor. Data from S3 Partners shows that in the first 5 months of the year, two stocks AMC and GameStop caused short sellers to lose $ 8.3 billion, of which a loss of $ 1.75 billion only in the last week of May.
There have appeared signs of the hedge funds’ withdrawal from the aggression of the invidial investors. A source familiar with the matter told Bloomberg that the biggest brokerages on Wall Street are quietly tightening rules for institutional investors short-selling meme stocks.
Goldman Sachs, Bank of America, Citigroup, and Jefferies Financial are some of the brokerage firms that have tightened risk control at their institutional clients. These brokers want to protect themselves from the dangers lurking from the roller coaster of stocks like AMC and GameStop.
The new regulation means that hedge funds and institutional investors are either required to have a higher level of collateral or are restricted from trading such stocks.
Hope for AMC
Meanwhile, the force of individual investors is winning. Every day, this “crew” has lively discussions on WallStreetBets, with enthusiastic comments such as: “AMC rocket ship,” or “Poured all savings into AMC!!! Good luck to you guys.”
Not only is it attractive to individual investors in the US, but AMC stock is also very attractive to investors from many other countries such as India and South Korea – all of which rely on social media and social networks.
Low fee stock trading app that gives access to US stocks. According to data from the Korea Securities Depository, in the first four days of last week, Korean investors bought $225 million worth of AMC shares.
The strength of individual investors has brought AMC to a turning point in market capitalization, even though the cinema chain has not yet escaped the “life-and-death” situation caused by Covid-19.
After only a few months, AMC from a small-cap stock has become a large-cap stock. Around October last year, AMC’s capitalization even fell below 300 million USD. After a 95% increase in the trading session on June 2, the capitalization of AMC has reached 31.3 billion USD.
This capitalization is higher than the capitalization of half of the companies in the S&P 500 index – the most prestigious stock “club” on the planet. Thus, within only about 8 months, the strength of individual investors has brought AMC’s capitalization to more than 31 billion USD.
The movie theater industry is one of the sectors hardest hit by the pandemic, and AMC is no exception.
Last year, AMC warned that the company could run out of cash by the end of the year. For the whole year of 2020, AMC lost $4.6 billion. In the first quarter of this year, AMC achieved revenue of 148.3 million USD, down 84.2% compared to the same period last year and net loss increased 567.2 million USD. In addition, AMC is owed about 5 billion USD and is short of 450 million USD in space rent.
The reopening of the US economy thanks to the vaccination campaign and the strong increase in stock prices have brought AMC “the light at the end of the tunnel”.
Movie theaters in the US have moved to reopen after months of closure. Blockbuster films that were delayed last year, such as “Black Widow” or “James Bond: No Time to Die” will be released this year. now on.
And without missing the opportunity from the stock price increase, AMC immediately conducted a series of capital raising to prepare for the post-Covid business development period.
Recently, AMC raised USD 230 million directly from fund management company Mudrick Capital Management, a creditor of the company. On June 3, AMC announced it would sell 11.5 million shares to raise more than $587 million in new capital.