Drop comes as Fintel options data reveals a sharp sentiment change in AMC stock
Shares of American theatre operator AMC Entertainment (NYSE:AMC) plunged as much as 20.3% in trading on Tuesday after holders voted to approve the conversion of preferred APE units to ordinary shares and a reverse stock split at the special shareholder meeting.
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At the time of the meeting, AMC ordinary shares dived while APE shares briefly spiked 20% higher. By the close, AMC shares recovered some of the losses to close the day with a 15% lower while the APE preferred stock reversed all gains to close 5.2% lower. At last look this morning, shares were clawing back less than 3% of that decline in premarket trading.
The approved reverse stock split will see AMC issue 10 shares for each 1 share held by investors and will allow the company to convert the APE units that were issued within the last year.
Around 88% of shareholders voted to approve the notions with CEO Adam Aron stating: “This is a landslide victory that shows your determination to keep AMC a strong and innovative company and the leader of our industry” Truth be told, the move was made in an effort by management to alleviate its debt burden with the ability to issue more shares.
Court Hearing
The only hurdle now remaining will be a court hearing slated for April 27 in the Delaware Chancery Court that could delay any further debt raisings. The hearing relates to a class-action lawsuit by disgruntled shareholders that were originally against the issuance of the APE preferred stock.
B. Riley securities analyst Eric Wold believes it will be difficult for the Delaware judge to oversee upcoming the class-action lawsuit and rule against the validity of the vote, given the overwhelming support of AMC shareholders to proceed with the conversion and reverse split.
The analyst also continues to view a positive path for AMC to raise capital, repair its balance sheet and also chase M&A opportunities but maintains a ‘neutral’ recommendation and $4.50 price target until final approval is granted and the conversion has occurred.
Sentiment Shift
While we wait to see if the share price regains through the course of today, consider that research from Fintel’s platform on AMC’s options data trends has revealed a sharp sentiment change in the stock.
This has been highlighted by the Put/Call ratio of 1.56 which has spiked significantly from a value of 0.6 at the beinning of 2023. The ratio has increased over the last quarter as a result of put option demand growing and outweighing call demand in the stock.
This ratio is calculated by assessing all of the put and call option demand in a stock over time to determine if underlying sentiment is bullish or bearish. A put/call ratio of below 1 indicates bullish sentiment, while a value above 1 indicates bearish sentiment for a stock.
The trends of the ratio against the share price are shown in the chart above.
Meme And More
It’s worth noting that AMC, one of the original r/WallStreetBets meme stocks, still continues to rank among the most mentioned stocks on the r/WallStreetBets Reddit channel. Its popularity on the forum often led to volatile stock prices, which Reuters noted last month don’t reflect company fundamentals or financial condition.
During AMC’s most recent fourth quarter update at the end of February, the company reported sales of $990.9, declining from $1.17 billion in the prior year. The figure was marginally ahead of market forecasts.
AMC generated positive adjusted EBITDA of $14.5 million, which surpassed analyst polled forecasts which expected a negative $10 million figure.
The company burned $57.5 million in operating cash flows and had available liquidity of $842.7 million at the end of 2022.
In general, analysts are broadly negative on the stock as highlighted by Fintel’s bearish consensus target price of $2.44. We expect analysts to re-adjust models and targets once the recent financing and legal overhangs on the stock are sorted.
Article by Ben Ward, Fintel