In a bold bid to defy the bearish trend, AMC shares staged a powerful rebound into double-digit territory, leaving investors grappling with dilution concerns.
- Despite a 21% decline in the two weeks of April, AMC Entertainment’s shares surged over 12% on April 16th, driven by news of impending stock dilution.
- In response to the stock dilution news, AMC’s shares entered oversold territory on April 15th, indicating potential undervaluation relative to company fundamentals.
- The recent surge hinted at a possible reversal of the bearish trend, with the stock closing near overbought territory, signaling investor optimism despite ongoing
AMC’s Performance on April 16th
Shares of the movie theater chain AMC Entertainment (AMC) surged 10% during the trading session on April 16th, partially offsetting the 21% decline in the first fifteen days of April, driven by news of further stock dilution ahead.
At the end of March, AMC shares sharply declined following the announcement of an equity distribution agreement, signaling its intention to sell shares with an aggregate offering price of up to $250 million.
AMC itself had acknowledged the potential for volatility in its share price through a company prospectus:
“While the market prices of our Class A common stock may respond to developments regarding our liquidity… We believe that volatility and our current market prices also 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.”
In response to the news of further stock dilution, AMC experienced a sharp decline, pushing the stock into oversold territory during the trading session on April 16. The RSI reached 20, noting that crossing 30 is considered oversold.
Source: TradingView
Considering that an oversold stock typically indicates a rapid and possibly excessive drop in share price, which may be driven by exaggerated market sentiment, it could suggest that the share price is undervalued relative to the company’s fundamentals, potentially leading to a reversal in patterns.
This appears to be the most plausible explanation for the events on April 16th. AMC shares surged, partially reversing the strong negative pressure observed in recent weeks. They closed the trading session with an RSI close to 70, indicating a near-overbought condition in a single session.
What’s the Deal with AMC Lately?
The recent trajectory of AMC’s shares has been notably influenced by the prevailing bearish sentiment surrounding its equity-selling initiatives to bolster liquidity.
While these initiatives enhance the company’s balance sheet through cash injections, they simultaneously dilute shareholder ownership, significantly impacting the stock price in a bearish manner.
Since obtaining approval to convert preferred shares into up to 350 million common equities last year, AMC has already raised approximately $865 million in cash by 2023, effectively increasing its float by around 105 million shares.
As a result, a substantial portion of shares remains available for issuance in the coming years, indicating that AMC’s management, under the leadership of CEO Adam Aron, may need to continue pursuing equity offerings to raise additional cash, further diluting the company’s float.
Moreover, with the company still striving to achieve pre-pandemic revenue levels amidst a slow recovery in the domestic box office, the imperative for ongoing cash infusion through equity offerings becomes increasingly evident.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content)
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