Adam Aron, CEO of AMC Entertainment Holdings, Inc., said in his tweet on the 7th of July, 2022: “I keep getting asked ‘Wen pounce?’ Know this 1. I always keep my word. 2. I’ve said publicly a pounce would not happen before Second Quarter 2022 earnings are announced. 3. Press release issued today that Q2 earnings are to be announced on Thurs, August 4. Read between those lines.” His tweet refers to his additional comments on short-selling during AMC Entertainment’s (NYSE:AMC) most recent earnings call.
Short Sellers Can’t Hold Down a Winning Stock
The CEO of AMC Entertainment (NYSE:AMC) should be aware of the risks associated with short selling more than any other CEO. The stock surged from $2.00 lows to a high of almost $71.00 in 2021 before plummeting back to its present price of $14.50. Leveraged shorts were highlighted at the time by the enormous short interest in AMC Entertainment, which was more than the stock available for purchase. Aron’s statements are absurd when viewed in the context of that maneuver and the subsequent price crash. What transpired when AMC crushed hedge funds and short-sellers in 2021 and cleared the huge blocks of shorts? As the meme investing crowd ran out of money, the stock’s momentum waned and it dropped back to reality based on its core financials. Are we to believe the CEO that a disorderly group of shorts is the only thing keeping the company stock from rising now that the company has seen its shares fall once more?
Elon Musk, the CEO of Tesla (TSLA), who also made similar remarks, criticized two well-known investors for holding short positions in his business. The aggressive businessman singled out Bill Gates and Michael Burry for holding short positions that were against his company. Elon Musk should also be aware that short holdings, particularly in one of the most well-known names on the market, have little impact on the long-term valuation of a stock. If the company keeps expanding and perhaps develops new goods or enhances existing ones, it will soar higher and damage short holdings. The short squeeze is made worse by the subsequent purchasing pressure, which raises the level at which shorts can depart. Elon Musk’s situation is made worse by his admission that his company’s stock was overvalued at $150 in May 2020. Despite the most recent tech crash, the business is still trading at approximately $750. The company went on to trade at highs around $1,200.
The issue with these CEOs is that they refuse to acknowledge their contribution to the decreased stock prices and deteriorating corporate morale. In actuality, trying to catch a bottom or putting a short position on a stock are both risky strategies. It is about finding the right price, and if businesses can truly add value, they can eliminate short positions, much like how bad news might hurt a bottom fisher harder.
The AMC Entertainment picture, then and now
The short float in AMC Entertainment (NYSE:AMC) is currently at 20%, a significant decrease from the 125 percent we observed in early 2021. In the case of AMC stock, we can observe that the price-to-sales ratio climbed from 0.18x to 14.92x in a short period despite no growth in sales. This business at the time derived its earnings from a brick-and-mortar movie theatre business model. At the time, the corporation was having debt problems and the cinemas were locked down. If we look at the revenue situation for 2020, anyone who thought this business would generate more than 15x sales with practically no revenues was ignoring the necessity of AMC’s recovery effort. Although revenues have again rebounded, they have not yet reached their pre-pandemic levels. Therefore, the current situation is that AMC Entertainment is trading at 2x sales, which is not a penalty given the revenue path.
Adam Aron’s statements are especially upsetting because the CEO appears to be trying desperately to win over Reddit’s “ape” gamblers and even uses their terminology when he says, “wen pounce.” The company wouldn’t need to rely on gimmicks and a brief squeeze if it could produce stuff. Even if they do, as it did the previous time, the market will eventually determine the proper pricing.
His subsequent remark that the corporation should “issue a cash, gift card, or NFT dividend,” demonstrates that the traditional business model is no longer working for the organization. Where is the long-term value for investors in this stock, even though it might be able to produce a short-term income burst from an NFT range?
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