AMC is a movie theater chain that has nearly 11,000 screens around the country. Its recent short squeeze has made it an investment favorite with investors, but the company’s struggles make it less enticing in the long term. While AMC’s stock price is still higher than three years ago, it’s no longer the “meme stock” it was when it hit the $400 million mark in the second quarter. As a result, investors should exercise extra caution before buying stock in AMC.
Before buying AMC stock, investors must determine how much they want to buy. This decision will determine how long they hold the shares and how they exit the stock. Some investors choose to trade short-term while others want to hold AMC stocks for several years. Once an investor has decided which strategy to use, the next step is to choose a brokerage firm. There are several types of brokerage firms, including discount brokerage firms that offer simple trading accounts and a full-service broker that offers advisory services. Full-service brokers are more expensive than discount brokers, but can help an investor make more informed decisions.
Another factor to consider is the value of AMC’s preferred units. AMC has a large share count and could decide to convert its preferred units into common stock. This could double or triple the number of its existing shares. However, this would destroy per-share investment returns. The primary purpose of preferred units is to preserve the company’s access to capital and remind it to stay in business. Despite its deteriorating stock price, AMC still remains a risky investment, so investors should pay close attention to its financials.
In 2021, AMC had a flash mob of individual investors that levitated the share price. These investors, dubbed “apes,” bought more than 80% of the company. This flash mob helped lift the company from the brink of bankruptcy. It also allowed the company to issue hundreds of millions of new shares. At one point, AMC management had just 2.5% of the company, but dumped nearly all their holdings. Now, only insiders own 0.2% of AMC stock.