Why AMC Entertainment Shot Another Stellar Week


What happened

Shares of AMC Entertainment (NYSE: AMC) ended the week up 28.1% from its close last Friday, according to data from S&P Global Market Intelligenceafter posting four out of five winning days and continuing a winning streak that began nine days ago.

Since closing at $13.56 on March 14, its lowest point since last May, the cinema operator’s stock has risen 49%. Despite a 72% decline from its 52-week high reached in the meme stock trading frenzy last year, it remains 143% above its all-time low a year ago.

Image source: Getty Images.

So what

The spark that ignited the rally was AMC’s somewhat confusing purchase of a stake in Hydroft Mining (NASDAQ: HYMC)a nearly extinct Nevada gold and silver miner who halted production in November because he ran out of cash.

AMC invested $28 million in the miner in exchange for a 22% stake, and it was joined by precious metals investor Eric Sprott, who invested a similar sum in the company. The miner wasted no time in taking advantage of its own surge in share price and completed a stock market offering on Friday that raised $138.6 million in gross proceeds. Coupled with investments, Hycroft raised $195 million in two weeks.

For many, AMC’s investment is seen as a low risk, high reward deal. With $1.8 billion in cash at his disposal, the money invested in Hycroft is negligible, but could lead to bumper returns if the miner succeeds in resurrecting his business.

AMC CEO Adam Aron maintains that the cinema operator’s business is currently on cruise control, therefore taking advantage of the opportunity to expand beyond the normal confines of the big screen is to be entered.

Now what

AMC’s stock market rally has also breathed new life into the internet chatroom crowd that has supported the theater chain over the past year. Although there was a large cohort who publicly maintained that they had retained their shares in the hope that the “mother of all short strikes”, or MOASS, strikes, those who jumped on the bandwagon late were demoralized by the steadily declining stock. The rally gave everyone hope.

That’s because AMC remains a heavily short stock with one-fifth of its outstanding shares sold short. If the self-proclaimed “monkeys” can keep the momentum going, driving AMC’s share price even higher, it could well trigger the short press they looked for.

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Rich Duprey has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

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