A stock analyst says Mudrick Capital’s AMC purchase and quick sale shows Wall Street insiders are ‘preying on the naivete’ of meme-stock traders

AMC Entertainment
  • Mudrick Capital’s purchase and then quick sale of AMC stock shows retail investors aren’t the only ones making money during the latest meme stock trading frenzy, said David Trainer, CEO of investment research firm New Constructs.
  • Trainer called the hedge fund’s quick profit an example of “institutions dunking on retail investors.”
  • He acknowledged that there are also retail investors profiting from the sale, but says the trading is risky and investors should take profits now.
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Mudrick Capital’s purchase and subsequent quick sale of AMC stock shows retail investors aren’t the only ones making money during the latest meme stock trading frenzy, said David Trainer, CEO of investment research firm New Constructs.

Mudrick Capital sold all its stock in AMC Entertainment Holdings Inc. for a profit on Tuesday, the same day the movie theater chain disclosed the hedge fund had bought $230 million worth of shares, Bloomberg reported. The firm then went as far as to call AMC’s stock overvalued in the aftermath. The move didn’t sit well with Trainer.

“A blatant example of institutions dunking on retail investors comes from the Mudrick Capital trade,” he told Insider. “They bought 8.5 million shares from AMC and turned around and sold it directly to the public for a quick profit.”

The meme trading frenzy isn’t an example of retail investors “beating” institutions as there are still institutions profiting from this as well. While there are a handful of retail investors getting rich, institutions like Mudrick as well as brokers who collect fees from the trading frenzy are also drawing in money, Trainer said.

“Wall Street insiders are preying on the naivete of retail meme stock traders,” Trainer said in an email.

His message for retail investors who’ve gotten in on the AMC trade?

“Take the gains you’ve made right now to the bank, don’t try to time the market.”

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AMC pares steep losses after the Reddit favorite raises nearly $590 million in new share sale

Movie patrons arrive to see a film at the AMC 16 theater in Burbank, California.
  • AMC closed off its lowest levels of Thursday’s session after the company said it raised $587.4 million by selling stock.
  • AMC, which is at the center of a fierce rally driven by retail investors, raised the funds by selling shares for $50.85, on average.
  • The movie-theater chain told investors they may lose the money they invest in their currently volatile shares.
  • See more stories on Insider’s business page.

AMC shares finished off session lows Thursday after the movie-theater chain at the center of this year’s massive rally fueled by retail traders said it raised nearly $590 million in a stock sale.

The stock had lost as much as 40% after the company early Thursday said it had planned to sell almost 12 million shares and warned investors that they could lose their money at a time of a stunning and volatile rally that has pushed AMC’s valuation to more than $30 billion.

In the afternoon, AMC said it sold the 11.6 million shares it wanted to offload and raised $587.4 million in the process. The average selling price was $50.85 apiece. The stock briefly turned higher after the update then reversed course to finish the session down 18% at $51.34. The decline marked the second in eight sessions.

CEO Adam Aron in a statement said it has now raised about $1.25 billion during the second quarter and the funds will strengthen its balance sheet and give it more flexibility to respond to business opportunities. The company recently began reopening movie theaters after it was forced to close them because of the COVID-19 pandemic.

AMC has taken advantage of a rally that’s driven its stock price up by more than 2,410% this year and itself is aware that its stock is likely overvalued.

“We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last,” AMC said in an SEC filing on Thursday during which trading in AMC was halted three times on the New York Stock Exchange.

AMC along with GameStop and some other companies have been embraced by retail traders on Reddit’s WallStreetBets forum, Twitter and other social media sites who have banded together to squeeze short positions. Short-sellers betting against AMC lost $2.8 billion on Wednesday alone as shares surged as much as 127%, according to data from analytics firm Ortex.

The recent rally was set off by major shareholder Dalian Wanda Group selling almost all of the remainder of its stake in AMC. Redditors responded by cheering the newly available shares and making their newfound weight felt in the market. Last week, AMC soared by 116%.

AMC on Wednesday finished 95% higher despite a share dump from hedge fund Mudrick Capital. The investment firm disposed of its AMC stake after concluding the stock was overvalued and carried higher by a wave of enthusiastic day traders, Bloomberg reported on Tuesday. AMC had said it would use the $230.5 million it raised from Mudrick’s purchase to make upgrades at its movie theaters and potentially make acquisitions.

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AMC stock slides 34% as Reddit favorite plans to sell nearly 12 million shares

Movie patrons arrive to see a film at the AMC 16 theater in Burbank, California.
  • AMC shares sank as much as 17% Thursday after the company said it plans to sell up to 11.6 million shares.
  • AMC, which is at the center of a fierce rally driven by retail investors, said it didn’t know how long the volatility would last.
  • The movie-theater chain told investors they may lose the money they put into its Class A shares.
  • See more stories on Insider’s business page.

AMC tumbled more than 30% during Thursday’s session after the movie-theater chain at the center of a massive rally fueled by retail traders on Reddit and Twitter filed a plan to sell nearly 12 million shares and cautioned investors they face potential losses.

The company reached an agreement with investment bank B. Riley Securities and Citigroup Global Markets Inc. to act as agents to sell up to 11,550,000 Class A shares from time to time, according to a filing with the Securities and Exchange.

AMC slid as much as 34% as it hit an intraday low of $41.25 then pared the loss. Investors yanked AMC sharply lower as potential share sales risk reducing the value of already available stock by increasing supply. Trading in AMC was halted three times before 10 a.m. Eastern Time on the New York Stock Exchange because of volatility.

“We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last,” AMC said.

“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.

AMC on Wednesday finished 95% higher despite a share dump from hedge fund Mudrick Capital, as retail traders active on Reddit’s WallStreetBets and other social media sites have been working together to squeeze short positions. Short-sellers betting against AMC lost $2.8 billion on Wednesday alone as shares surged as much as 127%, according to data from analytics firm Ortex.

The recent rally was set off by major shareholder Dalian Wanda Group selling almost all of the remainder of its stake in AMC. Redditors responded by cheering the newly available shares and making their newfound weight felt in the market. Last week, AMC soared by 116%.

Mudrick Capital disposed of its AMC stake after concluding the stock was overvalued and carried higher by a wave of enthusiastic day traders, Bloomberg reported on Tuesday. AMC said it would use the $230.5 million it raised from Mudrick’s purchase to make upgrades at its movie theaters and potentially make acquisitions.

AMC said Thursday is aiming to use any net proceeds from share sales for general corporate purposes, which may include repaying or refinancing debt or for capital expenditures.

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