The AMC share price has pulled back from a recent price breakout and will need further support to get to the all-time highs.
Fund-raising challenges doubters
Although many investors have said that the price of AMC shares is overdone, the company has steadily raised new capital with the gains.
Management is looking to capitalize on increased interest for the stock by raising more funds. Towards the end of last week, the company completed a share offering to raise over $580m of funding. This happened a day after another raise of $230m from Mudrick Capital.
The company is now saying it’ll ask shareholders to authorise the sale of 25m additional shares. At the current market price, this would be another war chest of $1.4bn of cash for the business. Management has said that they will go on offense and look for growth opportunities.
Management see prices as inflated
Rupert Hargreaves8 June 2021·3-min read
I have been watching the AMC Entertainment (NYSE: AMC) share price with fascination. Despite the company’s precarious financial position, investors have piled into the stock and its outlook has steadily improved.
I think there’s a good chance this could continue, which would support a higher share price.
AMC Entertainment share price outlook
AMC had an incredibly challenging 2020. The pandemic forced the company to close all of its cinemas, and revenues evaporated. This in itself was terrible news, but the group’s problems were compounded by the fact that it entered the pandemic with a lot of debt.
As such, over the past year, the world’s largest cinema group has been struggling to stay afloat and survive in a hostile environment.
However, the company’s outlook has changed dramatically over the past six months. Since the beginning of December last year, the AMC Entertainment share price has surged in value by nearly 1,300%. It is up 752% over the past 12 months.
In my opinion, how the stock got to this stage isn’t important. What is important is what management decides to do with this high share price.
Management is trying to capitalise on the increased interest for the stock by raising more money. Towards the end of last week, the company said it had completed a share offering to raise $587m of funding. This announcement came a day after it raised $230m from Mudrick Capital with another share sale.
More share sales are planned. In April, management put forward a proposal to issue an additional 500m shares, but it decided not to proceed. Nevertheless, the company is now saying it’ll ask shareholders to authorise the sale of only 25m additional shares. At the current market price, this would yield around $1.4bn of cash for the business.
Management sees stock overvalued
AMC will need to continue to hold these current price levels if the share sales are to be worthwhile. The company can use this money to reduce the debt load and strengthen the business outlook.
However, the company itself has warned that the current share price is high. “Our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last,” AMC said in a statement last Thursday.
For now AMC shares continue to beat the doubters and the more cash the company raises, the more it can boost the stock with strategic announcements and fiscal moves.
AMC Share Price Technical Analysis
The price of AMC shares broke out above a symmetrical triangle but that has been followed by two days of losses. The price needs to hold this $55.50 level or it could see further losses. Support for the shares comes in around the $40 level for AMC. A breakout above $65 could see new highs above the $70 level.
AMC Daily Chart
Variant is a headwind for the stock
A headwind for AMC shares could be a surge in the coronavirus variant in the fall. Experts have said that the virus which originated in India, has now spread to more than 80 countries and 41 states in the US. Doctors worry that as the number of people getting vaccinated decreases, the number of cases could increase. Another surge could see movie theatres shut down again, just as they are beginning to reopen and boost the outlook for the industry.