AMC continues to struggle below the 50-day moving average, but the movie theater company still is finding buyers willing to pay a premium for the meme stock.
On Dec. 19, the company announced that it is issuing 3.3 million shares to an undisclosed buyer in exchange for $25 million in subordinated notes, a form of debt, that will come due in 2026. The private offering values the stock at 7.47 per share. That is a 23% premium to the current price of 6.08.
Earlier, AMC shares fell after third-quarter results came out on Nov. 8. Sales grew 45% to $1.4 billion while its losses per share tapered to 9 cents from $1.99 a year ago. Both beat analyst estimates, according to FactSet. Nonetheless, shares fell.
AMC gained 33% in October amid the release of Taylor Swift's movie, "The Eras Tour." By comparison, the S&P 500 fell 2.2%. But the meme stock erased all of those gains in November and is down a further 9% in December. The stock is also at an all-time low. Meanwhile, the S&P 500 has gained 4%.
The stock got a boost earlier in September after the company completed a move to sell 40 million shares at an average price of 8.14, which raised $325 million.
It's welcome news for investors following the stock's precipitous drop. AMC has fallen 98% from its all-time high of 393.65. But it raises the question of whether meme stocks should ever be considered as a buy.
Stock Drops On Report
In August, AMC preferred equity shares — or APE units — were converted to common stock after AMC completed a 10-for-1 reverse split to reduce the number of shares outstanding. Already in a free fall, shares lost 26% on Aug. 24 after the news.
In an earlier sell-off, shares plummeted 35% on Aug. 14, after Barron's reported that a court had approved the conversion of APE units to common stock.
Before that, AMC briefly soared in July after a U.S. court blocked the stock conversion plan, which diluted its share value. The conversion of APE units to common stock was to help the movie theater chain pay down some of its $5.1 billion debt.
In total, AMC crashed by 71% in August and plunged another 36% in September. The meme stock has IBD Ratings that are well below ideal levels. The Composite Rating is just 23.
Panning out for a longer view, a MarketSmith monthly chart highlights the wild swings that are typical of meme stocks. From a split-adjusted closing price of 11.49 on Dec. 31, 2020, AMC shares hit an all-time high 393.65 on June 2, 2021. That's a gain of 3,326%. But the stock has crashed since then.
Wild swings are a hallmark of a meme stock like AMC.
GME Stock Falls On Earnings
Meme stock GameStop also is known for volatile movements.
GME shares fell after it reported third-quarter sales of $1 billion, slightly lower than $1.2 billion a year ago. Losses improved to 1 cent per share from 31 cents per share over the same period.
GameStop's volatility is cause for caution. For one thing, volatile movement provides little support for well-formed bases and buy points. Shares of GME rose after the company named Chairman Ryan Cohen as its chief executive in late September, but then it fell just as quickly in October.
Further, the stock is down more than 85% from its all-time high 120.75, reached in January 2021.
The stock broke out of a cup base with a buy point of 27 in June this year but quickly failed to hold the action. The breakout came after Cohen purchased 443,842 shares of GME stock through RC Ventures for a total of $10 million, according to reports.
Meme Stock Shares Skyrocket 1,625%
Going back further, the video game retailer grew an investor fan base in late 2020 at the height of the meme-stock frenzy. By January 2021, the meme stock shot up 1,625% to 81.25, then crashed to 9.63 the very next month.
On March 22 this year, shares rallied on an upside earnings surprise. GameStop reported earnings of 16 cents per share for the January-ended fiscal fourth quarter, its first profitable quarter in two years. Meanwhile, sales fell 1% to $2.2 billion.
Investor's Business Daily recommends stock picks based on strong fundamental performance and technical ratings. GME has an IBD Composite Rating of 31, reflecting poor chart action and fundamentals.
Top Financial Soars, Comes Back Down
Top Financial was a perfect example of meme stock volatility. The stock skyrocketed in one day from 48.60 to 256.44 on April 28 — a 428% gain. It quickly crashed and traded for under 10 by May.
TOP stock came public on the Nasdaq in June 2022. The initial offering priced at $5 per share for 5 million shares. Shares popped on the first day of trading, reaching a high of 27.50.
The stock rallied more than 50% in early May in meme-like action, then reversed gears and fell more than 70% in a single day. Shares have trended even lower since. The stock was trading around 4 a share in late December.
The Hong Kong-based fintech generates revenue through commissions on trades of equities, futures and options. Its Composite Rating stands at 66.
Is A Meme Stock A Buy Now?
A meme stock is a speculative play, known for high levels of unpredictability because it can rally or crash in any market, and at any time. Its meteoric rises and heart-stopping crashes typically depend on social media hype and online interest.
Hyper stock valuations for these companies depend, for the most part, on young fans and an anonymous following that can appear or disappear overnight. Retail investors dominate the interest in these stocks.
These stocks do not follow traditional investment wisdom, which says you should buy stocks based on earnings growth and performance. As such, they are extremely speculative.
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