AMC leads ‘meme stocks’ higher after $230 million capital raise By Reuters

(Reuters) – Shares of AMC Entertainment (NYSE:) Holdings Inc jumped more than 19% on Tuesday after the movie theater chain said it agreed to sell $230.5 million of equity to an investment firm, leading gains among a group of “meme stocks” that have benefited from another recent surge in buying by small-time investors.

AMC said it would issue 8.5 million shares to Mudrick Capital Management LP, the chain’s latest share sale this year as it cashes in on a 1,150% jump in its stock in 2021.

Mudrick has sold its AMC stake at a profit, believing the company’s shares are overvalued, a person familiar with the matter said on Tuesday. Additional details of the divestiture could not be immediately determined.

AMC did not immediately respond to a request for comment on Mudrick’s divestiture, which was earlier reported by Bloomberg News.

AMC said it would use proceeds from the recent share sale to invest in its existing theaters, which are set to benefit from a recovery in demand as more states lift COVID-19 restrictions on social gatherings.

“This can be a real way for AMC to grow again, creating immediate value for AMC shareholders,” Chief Executive Adam Aron wrote in a Twitter thread https://twitter.com/CEOAdam/status/1399683077660721152. “This is not mindless dilution, but rather this is very smart raising of cash so that we can grow this company.”

AMC shares traded above $31 at mid-afternoon.

The world’s largest cinema chain operator has so far raised about $1.35 billion through share sales since December 2020.

Sentiment around AMC was also supported by strong weekend box office collections in North America, led by John Krasinski’s post-apocalyptic thriller “A Quiet Place Part II,” one of the first major theatrical releases since last year.

AMC’s stock is up 1,370% so far this year in a rally that has seen investor sentiment in recent weeks swing back toward meme stocks, including video game retailer GameStop (NYSE:). GameStop’s shares, which rallied more than 1,600% in January, were recently up around 4%.

The moves have been partially fueled by bearish investors unwinding their bets against the stocks, as well as a shift away from bitcoin and other cryptocurrencies, whose prices have wobbled as they came under increased scrutiny from regulators in recent weeks.

The Memorial Day holiday is also expected to have boosted ticket sales as widespread vaccinations bring in more Americans to theaters.

“The stock is pricing in a lot of good news,” Thomas Hayes, managing member at Great Hill Capital Llc, said of AMC. He also noted, however, that AMC shares are more expensive than they were before COVID-19 hit movie theater attendance in early 2020.

“Unless you’re making a bet that twice as many people are going to go to the movies next year as went to the movies in 2019, the stock might be a little pricey here,” Hayes said.

Meanwhile, U.S.-listed shares of security software provider BlackBerry (NYSE:), another so-called meme stock often discussed on forums such as Reddit’s WallStreetBets, rose around 12%.

AMC and GameStop have been the most bought stocks on brokerage Robinhood’s retail trader-focused app, as well as on that of UK-based Freetrade, according to recent data.

On trading-focused social media site Stocktwits, nearly 96% of messages related to AMC featured positive sentiment toward the stock on Tuesday.

“To most veteran investors it seems like (the Reddit rally) would end badly, but I talk to a lot of younger investors and they continue to believe that this is one way to beat the market,” said Rick Meckler, a partner at Cherry Lane Investments.