AMC And GameStop: Will Meme Stocks Pop Again In June?

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The infamous meme stocks are trending again as retail investors on subreddit forum WallStreet Bets turn to AMC, driving its stock price up and costing short sellers $1.3 billion. Investors’ optimism, fueled by their belief in a quick economic recovery, may have led them to take risky positions once more.

Meme Stocks Price

AMC soared 60% in a week, while GameStop GME increased by approximately 37%. Last week, Bath & Beyond and BlackBerry, two other hot meme stocks, surged 11.6% and 9.9%, respectively.

GameStop Saga

GameStop, a brick and mortar company, has been rallying since January 2021. The video game retailer began the year with a stock price of nearly $20, and by the end of January, it had risen to $483 per share, resulting in the historic short squeeze. The prices are still up by 1180% and closed at $222 on Friday.

AMC, BlackBerry, and Bed Bath & Beyond are among the companies with high levels of short interest. Stock traders bet on companies that institutional investors thought were doomed. As a result, short sellers were forced to purchase borrowed shares in order to limit their losses. The subsequent buying of these shares drove the prices even higher, causing short-selling hedge funds to suffer.

AMC Entertainment

AMC has overtaken GameStop as the leader of the meme stock movement. Last week, the company reported an incredible 108.9% gain, and it increased by nearly 95% in May, bringing the net increase to 800% in 2021. On the other hand, GameStop only increased by 23.6% last week.

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The price increase could be the result of short covering. Short interest in U.S. stocks averages 5%, while 20% of AMC’s float shares are sold short. When the price of these shares skyrocket, short sellers are forced to repurchase borrowed shares, fueling the rise in stock prices even further, as happened in the case of GameStop in January.

The coronavirus pandemic has negatively affected the company since consumers aren’t flocking to theatres due to national lockdowns and fears of reoccurring waves. AMC has deferred $450 million worth of lease payments and has $5 billion worth of debt on its balance sheet. The company’s revenue has also been declining since the outbreak of the pandemic. Despite a decline in sales, AMC’s valuation has nearly tripled due to new retail investor interest. AMC was valued at $13.4 billion last Wednesday, up from $5.8 billion at the end of 2019.

AMC’s stock price forecast

The resurgence of the meme stocks could be attributed to a drop in the price of bitcoin, which may have prompted investors to oversell AMC and GameStop. Bitcoin’s recent 30% price drop may have caused stock traders to reduce their positions in speculative assets, resulting in oversold shares.

Similarly, investors’ optimism relating to the US economy may have fueled traders’ willingness to take risky positions once more. The stock market soared to new heights. The Dow Jones Industrial Average and the S&P 500 gained 1.9% and 0.6%, respectively, last month. The Russell 2000 index, which is dominated by small-cap stocks, has gained for the past eight months in a row. 

Investors believe that a potential increase in spending will boost economic growth as Covid cases decline because of the effective vaccination campaign. The positive sentiment towards meme stocks is likely to continue in June as well.

Mudric Capital Bought AMC Shares

Mudric Capital Management announced on Tuesday that it had purchased 8.5 million shares of AMC Entertainment for $230.5 million, or $27.12 per share. This represents a 3.8% increase over the company’s stock price on Friday. During the premarket trading session, AMC’s stock price increased by 7%. The funds will be used to investigate opportunities that will add value to AMC as well as to pay down debt. The funds will also be used to enhance the appearance of the company’s movie theaters.

The Bottom Line

AMC and GameStop are likely to trigger another short squeeze based on the movement of their stock prices and posts such as “AMC rocket ship” trending on WallStreetBets’ chat room.

Disclosure: none

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