Meme stock craze reaches new heights as AMC keeps surging

  • Markets
  • Thursday, 03 Jun 2021

(Bloomberg) -- "AMC to the Moon” posters are popping up at street corners and pool parties in the U.S. in yet another sign of the retail frenzy over meme stocks.

After a reality-defying surge on Wednesday, the stock is skyrocketing once again. The shares added 20% to US$74.85 in U.S. pre-market trading. AMC now has a market value of more than US$30 billion, making it bigger than at least half of the companies in the S&P 500 Index.

The latest meme stock frenzy appears to have greater momentum behind it than GameStop Corp. back in January, and the reasons are just as unclear.

Some analysts point to an abundance of liquidity and savings created during the pandemic. Others cite the impact of social media in providing a platform for small investors to egg each other on.

"AMC and meme stocks are somewhat the modern and accelerated version of tulip bulbs frenzy in the 17th century,” said Sylvain Goyon, a Paris-based strategist at Oddo BHF. "The shares rise with the hype and die without it.”

Other retail favorites were also on a tear. BlackBerry Ltd. soared 39% in premarket Thursday, while Workhorse Group Inc. jumped 26%.

AMC’s rally has been remarkable both in terms of its speed and extent. Just a few short months ago, the company was on the brink of bankruptcy as the pandemic shuttered cinemas across the U.S. What’s more, the outlook for the cinema industry remains littered with challenges.

As of Wednesday’s close, AMC stock had risen almost 30-fold since the start of this year, far exceeding GameStop’s 15-fold increase.

"Fundamentally, AMC is not a flourishing business, or at least not right now,” said Ipek Ozkardeskaya, a senior analyst at Swissquote. "There is a little chance that the actual and future business environment would ever justify a US$33 billion worth of market capitalization unless there is an incredible innovation in the movie theater business that no one’s heard of, and which would change the face of the business moving forward.”

To help explain the stock’s meteoric performance, some commentators point to a financial system that’s awash with cash and liquidity.

"This leads to bubbles and extreme situations such as the one we are seeing now on these retail sentiment names,” said Charles-Henry Monchau, chief financial and chief investment officer at FlowBank SA. "The meme stock phenomena is coming back with a vengeance after a two-month pause and this could indeed create some volatility on the overall market.”

AMC announced this week that it will reward the small-time supporters with goodies such as special screenings and free popcorn. It’s also taken advantage of meteoric gains to raise US$230 million directly from one of its main creditors, Mudrick Capital Management, and shore up its finances.

"When a fresh pile on, sparked by the offer of free popcorn, leads to a doubling of the share price in just a day, it shows a huge disconnect between price and underlying value,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said by email.

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