AMC (AMC) stock plummeted in early trading Monday, dropping nearly 40% as investors expressed concern about the potential dilution of their common stock.
During the weekend, a merger between AMC and AMC preferred shares (APE) was approved by a Delaware court, resulting in all outstanding shares becoming AMC common stock. Furthermore, according to an SEC filing, a 1-to-10 reverse stock split is scheduled for August 24, meaning that every 10 shares held by an investor will now be consolidated into one share with a higher value.
As per the filing, trading of APE shares will cease on August 25.
AMC shares have experienced volatility over the past few months, initially gaining shareholder approval for this conversion in March but then being halted in late July. AMC CEO Adam Aron previously stated that the stock conversion is vital for ensuring AMC maintains proper cash balances in 2024 and 2025.
“AMC should now be able to raise additional equity capital,” Aron wrote in a letter to investors on Sunday. “We can use this access to equity capital to strengthen our cash reserves, pay down debt, invest in growth initiatives to enhance our operating profitability, and pursue transformative merger and acquisition opportunities.”
AMC’s stock has been on the rise in the past month, thanks to the success of “Barbenheimer,” a combination of “Barbie” and “Oppenheimer,” which led to AMC’s best single-day performance since before the pandemic. The company has been striving to recover since 2020, when theater attendance declined due to COVID-19 restrictions.
In its most recent quarter, reported on August 8, AMC exceeded analysts’ projections with $1.35 billion in quarterly revenue, higher than the expected $1.29 billion. The company also surpassed Street estimates of a loss of $0.04 per share with $0.00 earnings per share.
This quarter marks the first time since Q4 2019 that the company has not reported an adjusted loss per share. However, despite exceeding revenue estimates, AMC’s revenue still lags behind the same quarter in 2019 by approximately $150 million, prior to the disruptions caused by the pandemic. Attendance in the most recent quarter was down around 30% compared to the same period in 2019.
“AMC’s court case resolution removes a significant overhang, and we expect AMC and APE shares to converge around $3 into the conversion (APEs into AMC),” noted Wedbush analysts Alicia Reese and Michael Pachter in a note on Monday. “Despite our positive view on AMC’s recent fundamental performance, we maintain our Underperform rating and $2 price target as shares continue to trade at a substantial premium compared to its peers.”
Josh Schafer is a reporter for Yahoo Finance.
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