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AMC Theatres Stock Plunges 50% as Reddit-Inspired Rally Loses Steam

Cinema chain is below $7 per share on Tuesday, less than a week after it climbed to nearly $20

The sequel to last week’s big run for AMC Entertainment has turned into a flop, with the nation’s largest cinema chain seeing its share price plunge 50% during the first hour of trading on Tuesday.

AMC’s drop pushed the company’s share price down to $6.62 per share. That’s a far cry from last Wednesday, when AMC quadrupled in value to close at nearly $20 per share, thanks in large part to support from Wall Street Bets, a popular Reddit forum that has also rallied behind GameStop and other so-called “meme stocks” in recent weeks.

AMC, like other film exhibitors, has been decimated by the coronavirus pandemic, but received a $917 million lifeline last week to help the company avoid bankruptcy — a move that fueled its climb last week. The company’s momentum was hampered last Thursday, though, when the stock-trading app Robinhood briefly banned users from buying shares of AMC, GameStop and several other companies.

MKM Partners analyst Eric Handler, in a note to clients this week, added to the grim picture, saying AMC’s share price could slip down to $1 per share this year, per Marketwatch. Handler acknowledged AMC’s recent cash infusion helped avoid bankruptcy, but he said the company still faces serious financial problems.

“Equity shareholders have been diluted by roughly 75% over the last couple months and there is still approximately $5.7 billion of debt, a total which is growing each quarter due to deferred interest payments which are tacked on to the principal balance,” Handler said. “There is also the overhang of $450 million of deferred rents which will some day need to be addressed.”

Zooming out, AMC is still in a good position compared to where it started the year at about $2 per share. But that’s obviously little consolation for investors who jumped into the stock in recent days, looking to join other Reddit-inspired investors in taking on hedge funds who have heavily shorted the cinema chain.