Whether you admired or despised them, it's hard to say that retail investors from the r/WallStreetBets subreddit haven't had a significant impact on Wall Street. The massive Reddit-driven rally took investors by surprise and drove shares of several companies, primarily GameStop
Reality may arrive sooner rather than later for AMC, which intends to issue 500 million new shares once it secures shareholder approval. Even before shareholders have made their decision, the prospect of such a massive offering was enough to drive AMC shares down for much of the week. The immediate concern is oversaturation, with most analysts predicting that the new offering will dilute AMC's share price. AMC, however, doesn't seem too concerned by this prospect.
"Dilution is something we care about, but I will say we are formally asking approval from our shareholders to authorize another 500 million new shares that the company could issue if it wishes," CEO Adam Aron told Jim Cramer. "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 theatre rents."
The obstacle laying in AMC's way, however, is the reality of its financial situation. AMC is by no means in good shape, ending 2020 in the red with just $2.86 billion more liabilities than assets. The company's high interest rates and the over $100 million monthly expenditures eating through the company's cash, compounding with uncertainties over new Coronavirus strains and the potential of a fourth wave, only make AMC's situation seem that much grimmer.
Analysts have issued similar warnings to Sundial and GameStop investors, which are similarly in rough shape, considered overvalued, and may be heading for a reality check in the coming months. While both companies are in better condition than AMC (the theater chain being the only of the three that has any real threat of actually going bankrupt in the near future), GameStop's performance in 2020 was still less than desirable, and Sundial continues to issue new shares despite the rapid dilution of its share price.
AMC's announcement came late last week and drove the company's share price down for much of this week. AMC's slide began last Friday, opening at $11.26, and reached $9.72 by noon on Thursday, a 13% loss.