Why AMC Entertainment Stock Was Popping Today – The Motley Fool

What happened

Shares of AMC Entertainment Holdings (AMC 14.68%) were climbing today as meme stocks came back into vogue. Traders on Reddit’s WallStreetBets (WSB) once again piled into meme stocks including Bed Bath & Beyond, GameStop, and AMC Entertainment, trying to execute a short squeeze. AMC had been a big winner in the original rally that started January 2021, rising more than 2,000% at one point.

Today, the stock was up 17% as of 12:36 p.m. ET.

So what

A rally that started Friday in meme stocks has carried over to today after AMC shares gained 19% on Friday in high-volume trading. Like the surge last year, this one was engineered by traders on WallStreetBets. It also follows a second-quarter earnings report last week that shows AMC stock recovering from the depths of the pandemic.

On Reddit, hundreds of traders touted their bets on AMC in a push to bring the stock back to its earlier heights. The WallStreetBets crowd has traditionally tried to lift share prices through short squeezes, forcing those who bet against stocks to buy back their shares. But AMC is not as heavily shorted as it once was. As of July 15, 19% of the stock was sold short, making it a reasonable target for the WSB traders, but not as blatant as some of the other stocks it has pounced on.

Now what

Along with GameStop, AMC has been the big favorite of WallStreetBets traders, and backers of the world’s biggest movie theater chain have taken to calling themselves apes, further establishing the stock’s meme status.

In its second-quarter earnings report out last week, AMC reported results in line with estimates. Revenue jumped 162% to $1.17 billion as it recovered from the pandemic, and it posted positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $106.7 million compared to a loss of $150.8 million in the quarter a year ago. However, it still lost money on free cash flow basis and under generally accepted accounting principles (GAAP).

Audiences are returning to theaters, but AMC’s more than $5 billion in debt remains an albatross for the business and is likely to prevent it from turning profitable. Still, as the first meme stock rally showed, fundamentals are not relevant to today’s gains.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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