Market analysts warn against meme-stock ‘gambling,’ as AMC’s stock price remains decoupled from fundamentals

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  • Market analysts said it’s hard to predict when surges in AMC’s stock price will come to a halt.
  • “It is anyone’s guess how much larger this bubble can grow,” one analyst said.
  • AMC shares whipsawed Thursday after a record surge Wednesday that nearly doubled the stock price.
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The rally in shares of AMC Entertainment, fueled by an army of retail traders, could be at an end – or not.

The world’s largest movie theater chain nearly doubled in value in a single day of trading Wednesday, adding to gains from the day and week prior, as retail investors – pooled together on sites like Reddit and Twitter – poured into the stock.

The price then whipsawed from red to green to red again Thursday after AMC announced a share sale, which initially caused the stock to plummet. The decline, one analyst said, was “to be expected.”

“The bigger it goes, the farther it’s going to fall,” said David Trainer, chief executive officer of investment research firm New Constructs.

Market analysts weighed in Thursday on the unprecedented gains in AMC that helped drive a rally in a group of meme stocks this week. The analysts said the surge in AMC’s stock price was detached from the reality of the company’s value, but when that rally will come to a halt is a gamble.

“The retail force behind this movement is still strong, so it is anyone’s guess how much larger this bubble can grow,” said Edward Moya, senior market analyst at OANDA.

Meme stock trading, he said, “is just gambling. You could easily see this come crashing in minutes time.”

Trying to apply logic to AMC’s share price is “futile,” said David Jones, chief market strategist at European trading and investing platform Capital.com.

“Who knows when the music stops?” he said. “Just don’t expect to be able to call the top in this one. We may have already seen it, but then again perhaps it doubles in price once more.”

The current trading enviornment can’t last forever, Moya said, predicting that meme stocks such as AMC would give up a lot of their gains by the end of the week.

Some retail-trader favorites have already begun to erase gains made earlier in the week. Bed Bath & Beyond, GameStop, and Beyond Meat all declined Thursday. But some meme stocks, like Tilray, BlackBerry, and Workhorse continued increasing in value.

AMC’s actual value, the analysts said, is far detached from where it’s trading.

“It’s hard to justify an equity valuation above $0,” Trainer said, citing the company’s debt load, weak earnings, and share dilution.

Moya said the stock price will likely settle below the $20 mark it surpassed last week. “The overall fundamentals are really going to hamper this stock,” he said.

But, the analysts said, the retail traders don’t care about the fundamentals of the company, which has flirted with bankruptcy in the past and struggled amid the COVID-19 pandemic as movie theaters shuttered and people opted to stay at home to watch new films.

“They call each other ‘apes.'” Trainer said. “They flaunt the fact that they don’t care about fundamentals.”

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The CEO of AMC gifted his twin sons 500,000 shares in March. Now the holdings are worth more than $30 million after the stock’s massive surge.

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AMC Theaters CEO Adam Aron accepts the Sid Grauman Award on behalf of AMC at the 33rd American Cinematheque Award at the Beverly Hilton Hotel on Nov. 8, 2019.

  • AMC CEO gave his twin sons 500,000 shares of the movie theater chain in March, Bloomberg reported.
  • At that time, the gift was worth about $6.8 million, but following a massive surge, the value of the shares has ballooned five-fold.
  • AMC’s monster rally catapulted the company to record highs Wednesday, with a year-to-date gain of as much as 3,325%.
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AMC Entertainment CEO Adam Aron gave his twin sons 500,000 shares of the movie theater chain in March, at the time worth about $6.8 million, according to a March 17 filing with the Securities and Exchange Commission, Bloomberg first reported.

But following a massive surge, those shares have seen a five-fold gain and are now valued at around $31.2 million.

As for Aron, the filing revealed that his shares and longer-term grants are now worth more than $260 million.

AMC’s monster rally catapulted the stock to record highs Wednesday, with its market valuation surpassing $30 billion. The stock’s year-to-date gain in the previous session surged to as much as 3,325%.

The meteoric rally has some analysts sounding the alarm yet again over unrealistic valuations. David Trainer, CEO of New Constructs, said AMC’s stock is trading at levels that are disconnected from fundamentals.

“There is no fundamental reason to be buying shares of AMC Entertainment,” Trainer said in a statement. “We think AMC Entertainment’s stock is worth $0 per share, given its weak earnings, dilution from recent stock offerings and mountain of debt.”

AMC shares are trading lower by 21.03% to $49.39 as of 12:13 p.m. ET Thursday.

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GameStop’s latest rally has pushed shares up roughly 50% in the past month amid a new meme-stock boom

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  • Meme stocks are experiencing a resurgence, with shares of GameStop rising roughly 50% in the past month.
  • The rise can be partially attributed to a short-squeeze as the company’s short interest remains elevated at 20%.
  • Shares of Gamestop have risen more than 1,200% since December 31, 2020.
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GameStop stock continued its rally on Friday amid a meme-stock resurgence with shares rising as much as 5.39%.

In the past month alone, shares of GameStop are up nearly 50%, while fellow Reddit darling AMC has seen an incredible rise of nearly 200% over the same period.

The jump in share price can be at least partially attributed to a short-squeeze as 20.27% of outstanding shares are currently sold short, according to data from S3 Partners managing director of predictive analytics, Ihor Dusaniwsky.

GameStop shares were also buoyed by the company’s recent announcement that it is building a non-fungible token (NFT) platform based on the ethereum blockchain.

The meme-stock resurgence has put short sellers in some serious trouble. On Tuesday alone, short sellers in AMC and GameStop lost $618 million, according to data from ORTEX.

GameStop stock is up more than 1200% since December 31, 2020, and the company has capitalized on the move.

The video game retailer raised more than $550 million via an at-the-market share offering, paid down debts, and implemented a turnaround strategy led by Chewy.com co-founder Ryan Cohen.

However, GameStop’s resurgence comes in spite of recently released data that shows videogame sales declined on a year-over-year basis for the first time in 14 months in April, according to NPD Group.

Game Stop also let its former CEO, George Sherman, walk away last month with a $170 million pay-out.

Shares of Gamestop still trade around 45% off of the company’s record-high of $483 per share, reached during the wild late-January short-squeeze.

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Don’t short meme stocks as retail and institutional investors rotate back into Reddit trades, market strategist says

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Traders shouldn’t be shorting so-called meme stocks amid a rotation back into Reddit trades from both institutional and retail investors, according to Joe Terranova, senior managing director and chief market strategist at Virtus Investment Partners.

Terranova sat down with CNBC on Thursday to discuss the recent resurgence of meme stocks and said when it comes to the social media favorites, “the first thing you don’t do is you don’t short these stocks.”

To his point, on Tuesday alone, AMC and Gamestop’s rise caused short sellers to lose $618 million in a single day, according to data from ORTEX.

The market strategist went on to describe the rotation back into Reddit favorites like GameStop and AMC from both retail traders and institutions after cryptocurrencies’ recent leverage unwinding.

Despite a common belief that these trades are run by the retail community, Terranova says institutions are just as involved.

“Let’s not think that this is just all retail traders. This is institutional money, this is hedge funds, they’re participating on the long-side, and I don’t think you fight it,” he said.

When asked whether this was a short-term trade or a “fundamental investment” Terranova laughed and said it was clearly just a trade as far as institutions are concerned.

The strategist noted that there are algorithms used by institutions that are recognizing price momentum in meme stocks and “positioning accordingly on the long-side.”

Shares of Gamestop are up more than 35% this past week as increased chatter on Reddit, and other social media platforms has brought a second wind to the video game retailer.

Fellow Reddit darling AMC‘s stock is also on fire, surging more than 45% since last Thursday.

Blackberry has seen a resurgence of late as well, with Reddit traders using rocket emojis to celebrate its return to around $10 per share.

Terranova says as these Reddit stocks rise, the key question isn’t how to trade them, but rather: what’s next?

“The question now becomes where else do they target? Do they go to Beyond Meat which has a 24% short interest? Do they look at Roblox, which is trading incredibly strong? I think ultimately that they do, but absolutely you don’t short these stocks,” Terranova said.

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