Why AMC Entertainment Holdings Dropped as Much as 48.1% This Week

Shares of AMC Entertainment (NYSE: AMC) dropped 47.8% this week, according to data from S&P Global Market Intelligence. The movie theater chain and popular meme stock issued a new class of preferred stock with the ticker APE (NYSE: APE), which is equivalent to one share of the common stock. This is why shares of the original AMC class almost got cut in half in the last few trading days. As of this writing, shares of AMC Entertainment are down 47.8% this week. 

As many of us know by now, AMC turned into a meme stock in 2021. Retail investors bid up the stock to astronomical heights even while the movie theater chain has struggled to generate positive cash flow. To take advantage of this inflated stock price, management has consistently issued a gigantic amount of shares to raise capital. For reference, AMC's share count went from around 100 million before the pandemic to over 500 million today.

However, with all this share dilution, AMC has hit a ceiling on the number of common shares it can have outstanding. And without approval from its board of directors, it is unable to issue any more. This is where APE preferred stock comes in. Recently, AMC authorized up to 1 billion new preferred units called APE, which is economically equivalent to a share of AMC common stock.

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Source Fool.com