Insights

Why AMC Entertainment Is Tumbling Today

What happened

Shares of AMC Entertainment (NYSE: AMC) are tumbling 9.5% at 11:22 a.m. on Thursday after a couple of days running higher following a positive weekend box office report. 

Although there was no company-specific news to account for the movie theater operator’s decline, CEO Adam Aron was on Twitter yesterday dashing the claims of some retail investors that there’s a massive hidden pool of shares being shorted, which is holding back the stock.

“As I’ve said before,” Aron’s tweet read, “we’ve seen no reliable info on so-called synthetic or fake shares.”

Inbound tweets ask over and over for a “share count.” AMC has done a share count 6 times in the past year. We know of 516.8 million AMC shares. Some of you believe the count is much higher. As I’ve said before, we’ve seen no reliable info on so-called synthetic or fake shares.

— Adam Aron (@CEOAdam) June 15, 2022

So what

AMC has become one of the premiere meme stocks that trades more on what’s said about the company in internet chat rooms and social media than on the fundamentals of the business. Its stock was saved by small retail investors banding together and boosting its value to unprecedented heights, but it has since crashed back down on the reality that AMC has a troubled financial future.

However, there is a tight band of investors who continue to hold, and they’ve deemed themselves to be “apes” with “diamond hands” who won’t sell their shares until the “mother of all short squeezes” (MOASS) happens.

They predicate that on a true accounting of AMC’s stock, contending there are far more shares floating around than have been authorized.

Now what

The response to Aron’s tweet shows that such investors aren’t buying his explanation, that he’s either being purposefully cagey for regulatory reasons or is willfully blind to what’s happening.

By refusing to believe even the movie theater‘s CEO saying they’ve counted their shares six separate times and found nothing amiss, it suggests AMC stock will continue trading on everything but its fundamentals, and investors should continue avoiding the stock.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Twitter. The Motley Fool has a disclosure policy.

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