US cinema chain AMC has put out a blunt warning to smaller investors as it launched a new share sale.
It warned against buying “unless you are prepared to incur the risk of losing all or a substantial portion of your investment.”
On Thursday it unveiled plans to sell up to 11.6 million shares off the back of surging prices in the “meme” stock popularised on social media.
AMC stock fell 16.47% in early trading on the New York Stock Exchange
It comes a day after the company updated its offer for retail investors, who can now claim a tub of free popcorn if they sign up to a regular newsletter.
A number of Wall Street analysts have said AMC is already heavily overvalued and many institutional traders have said they were steering clear of the stock, the latest target of a number of small-time traders organised on Reddit and other social media.
On Thursday, it said in a filing that it would sell up to 11.55 million shares of common stock, with money raised going towards “general corporate purposes,” which could cover paying off current debts or buying new cinemas. Its shares fell after the announcement.
This marks its second share sale in three days, having raised $230.5m (£163.3m) by selling 8.5 million new shares to the hedge fund Mudrick Capital Management, which later sold those shares at a profit.
Why has AMC stock been soaring?
The cinema chain operator said it believed current prices reflected “market and trading dynamics unrelated to our underlying business”.
In the year to date, shares in AMC have soared 2,421% – despite its cinemas being largely shut during the pandemic.
But it is the latest example of small investors trying to seize power from Wall Street giants.
Major hedge funds had bet billions of dollars that GameStop and AMC’s shares would fall.
They have since faced huge losses after amateurs, swapping tips on social media sites like Reddit or Twitter, drove prices up in so-called “meme” stocks.
AMC said on Thursday that it did not know “how long these dynamics will last.
“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,” it said.
Analysts have also warned that the stock may be overvalued due to the rise of streaming and competition from other entertainment companies.
David Trainer, chief executive of investment research firm New Constructs, said: “AMC’s business was trending in the wrong direction even prior to the Covid-19 pandemic… We think AMC’s stock is worth $0 per share, given its weak earnings, dilution from recent stock offerings and mountain of debt.”
Despite that, AMC has been among the biggest winners from a spike of interest in meme stocks, fuelled in part by a new generation of social media-centric small traders.
On Wednesday, #AMCstock was trending on Twitter in the US as investors discussed their holdings and the share price nearly doubled.
The Securities and Exchange Commission chairman Gary Gensler said at a hearing last month that it will report on issues around volatile “meme” stocks this summer.
He said that although online forums such as Reddit can serve as a “real community”, he is concerned about “the risks that nefarious actors may try to send signals to manipulate the market”.