Why AMC Entertainment Stock Dropped Today

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What happened

AMC Entertainment (NYSE:AMC) is looking forward to people getting back into theaters, but pre-pandemic levels have not yet returned. The company still wants more flexibility to potentially issue shares to raise more capital, or to use to help the business, the CEO told CNBC in an interview. After hearing about the plans, investors fearing more potential dilution knocked the stock down Thursday. As of 12:45 p.m. EDT, shares in AMC had dropped 5.1%. 

So what

AMC CEO Adam Aron said today that the company has asked shareholders to approve the ability for AMC to issue 500 million new shares. Aron said he supported the plan because “there are a lot of benefits to our shareholders of having more authorized shares out on the market.”

Image source: Getty Images.

Investors today reacted negatively to the potential for further dilution. In January, Aron told investors that after raising over $900 million since December 2020, the company had successfully navigated the shutdowns and restrictions on theaters, adding “this means that any talk of an imminent bankruptcy for AMC is completely off the table.”

Now what

Attempting to allay investor concerns, Aron also said in today’s interview, “We’ll be sensitive to dilution issues, but at the same time there’s an opportunity to bolster our cash reserves and there’s an opportunity to buy back debt at a discount or pay deferred theater rents.” 

Aron added that business is improving as vaccinations continue. With the release of Godzilla vs. Kong yesterday, Aron said attendance at AMC’s North American theaters was 10 times higher than other Wednesdays in 2021. 

With the stock up more than 350% since the start of the year, investors today are taking some money off the table in the event more dilution does come. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.