Written by Norman Isaac Mwambazi

“Buy only if you’re ready to lose all your investment” – AMC issues warning to prospective buyers of its new stock offering

Cinema operator AMC Entertainment Holdings is one of the companies that started 2021 with its stock characterised as a meme …

Cinema operator AMC Entertainment Holdings is one of the companies that started 2021 with its stock characterised as a meme stock because of its depreciating value. AMC was severely affected by the COVID-19 pandemic which forced the US government to adopt lockdown and stay-at-home measures that kept people from going to the cinemas and opted for streaming services like Netflix, and Hulu among others.

AMC top hierarchy put in some effort to save the company from going bankrupt towards the end of last year but the company’s situation was mostly helped by retail investors who ganged up on the company’s stock and pushed it up to the sky, rising from $1.91 as of January 5, 2021, to $72.62, as of June 2, 2021. This upside move is equal to 2,850% this year alone.

AMC’s stock price surge has surprised everyone in the stock business from investors to analysts to the company’s lawyers itself, so much so that the company added a fresh risk factor to its 11 million–share sale. The warning was delivered through a long statement by the company but in short, it highlights the fact that its stock is highly volatile, and that if any investor chooses to invest in it, they should be able to afford to lose it all, or a substantial part of it.

Here is the whole statement:

The market prices and trading volume of our shares of Class A common stock have recently experienced and may continue to experience, extreme volatility, which could cause purchasers of our Class A common stock to incur substantial losses.

For example, during 2021 to date, the market price of our Class A common stock has fluctuated from an intra-day low of $1.91 per share on January 5, 2021, to an intra-day high on the NYSE of $72.62 on June 2, 2021, and the last reported sale price of our Class A common stock on the NYSE on June 2, 2021, was $62.55 per share. From 2021 to date, daily trading volume ranged from approximately 23,598,228 to 1,253,253,550 shares.

Within the last seven business days, the market price of our Class A common stock has fluctuated from an intra-day low of $12.18 on May 24, 2021, to an intra-day high of $72.62 on June 2, 2021, and we have made no disclosure regarding a change to our underlying business during that period, other than with respect to additional financing.

We believe that the recent volatility and our current market prices reflect the 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. 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.

Extreme fluctuations in the market price of our Class A common stock have been accompanied by reports of strong and atypical retail investor interest, including on social media and online forums. The market volatility and trading patterns we have experienced create several risks for investors, including the following:

  • The market price of our Class A common stock has experienced and may continue to experience rapid and substantial increases or decreases unrelated to our operating performance or prospects, or macro or industry fundamentals, and substantial increases may be significantly inconsistent with the risks and uncertainties that we continue to face;
  • Factors in the public trading market for our Class A common stock include the sentiment of retail investors (including as may be expressed on financial trading and other social media sites and online forums), the direct access by retail investors to broadly available trading platforms, the amount and status of short interest in our securities, access to margin debt, trading in options and other derivatives on our Class A common stock and any related hedging and other trading factors;
  • Our market capitalization, as implied by various trading prices, currently reflects valuations that diverge significantly from those seen prior to recent volatility and that are significantly higher than our market capitalization immediately prior to the COVID-19 pandemic, and to the extent, these valuations reflect trading dynamics unrelated to our financial performance or prospects, purchasers of our Class A common stock could incur substantial losses if there are declines in market prices driven by a return to earlier valuations;
  • To the extent volatility in our Class A common stock is caused, as has widely been reported, by a “short squeeze” in which coordinated trading activity causes a spike in the market price of our Class A common stock as traders with a short position make market purchases to avoid or to mitigate potential losses, investors purchase at inflated prices unrelated to our financial performance or prospects, and may thereafter suffer substantial losses as prices decline once the level of short-covering purchases has abated; and
  • If the market price of our Class A common stock declines, you may be unable to resell your shares at or above the price at which you acquired them. We cannot assure you that the equity issuance of our Class A common stock will not fluctuate or decline significantly in the future, in which case you could incur substantial losses.

We may continue to incur rapid and substantial increases or decreases in our stock price in the foreseeable future that may not coincide in timing with the disclosure of news or developments by or affecting us. Accordingly, the market price of our shares of Class A common stock may fluctuate dramatically and may decline rapidly, regardless of any developments in our business.

AMC Entertainment’s stock is currently trading at $49.85 per share, and it has a market capitalisation of $25.04 billion.