Home ECONOMY AMC shares fall after research house discloses short positions

AMC shares fall after research house discloses short positions

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Shares of AMC Entertainment fell as much as 12 percent on Friday after short-seller Iceberg Research tweeted that it had made a bearish bet against the theater chain operator’s stock.

The so-called meme stock fell 8.9 percent at $49.40 after hitting a low of $47.77 after Iceberg revealed on Twitter that he had sold the shares short, with a view to buying them back at a lower price to cover bets. Including borrowing of shares from As of just before 2 p.m. EDT, the stock was down about 6 percent.

Arnaud Wagner, founder of Iceberg Research, said, “Our position is based on the fundamentals of the company and the fact that the stock price has been driven up by call options, which is always temporary.”

Bearish investors have been forced to open up their bets as a rapidly rising stock price has helped fuel rallies this year at AMC, video game retailer GameStop and other companies that are popular on online forums such as Reddit’s Wallstreetbets.

Shares of AMC, while down from their June 2 peak of $72.62, were still up more than 2000 percent after ending the year 2020 at $2.12.

Wagner said that although there are risks associated with betting against mem stocks, “any sharp rise is followed by a correction. It’s inevitable.”

Wagner, a former credit analyst who formed the company in 2015, declined to give details of the firm’s short positions.

AMC’s latest rally was helped by heavy trading of equity options, financial derivatives, which give buyers the right to buy or sell shares in the future at a certain price, depending on where the stock is priced.

As the share price skyrocketed, market makers selling AMC options were forced to buy shares of the company to offset their exposure, causing the stock in a process known as a gamma squeeze.

AMC did not immediately respond to a request for comment.

Chart of stock prices for AMC
AMC’s price fell on Thursday on the bearish bet of a new short-seller on the popular meme stock.
Yahoo! finance

“These meme stocks are so volatile in their trading that it doesn’t take long to make a big move up or down,” said Eric Handler, analyst at MKM Parners, which has an AMC rating of ‘Sell’ with a $1 price target.

Handler noted that AMC’s trading price for earnings before interest, taxes, depreciation and amortization (EBITDA) is more than 45 times the 2022 estimate, which is 9 times the EBITDA for movie theater stocks before the pandemic. Its historical peak is manifold.

“At some point, I don’t know when that will happen, inevitably there should be some kind of mean reversal with AMC. I don’t think it can sustain a 45x EBITDA multiple permanently,” he said.

Iceberg Gained attention in 2015 for exposing aggressive accounting practices at Hong Kong-based Noble Group. Commodity trader Noble denied the allegations but later saw its profits plummet and was forced to sell most of its assets.

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