Two weeks after its surprise mining investment, the movie theater AMC stock is once again on fire.
Is this the mother of all short squeezes for AMC Entertainment (AMC 24.26 percent) investors waiting for?
What happened Stock of AMC is rocketing higher today
At 11:30 a.m. EST on Monday, shares of AMC were up 22.2 percent after another week of rapidly rising stock prices. Short-sellers must be under pressure, as the stock has nearly doubled in just two weeks, and many are likely moving to cover their positions.
So what
AMC is still a heavily shorted stock, with more than 20% of its outstanding shares sold short. Many of those traders were surprised when the movie theater operator zigzagged when they expected a zag. The news that AMC was buying a stake in a gold and silver miner defied conventional wisdom and sent the company’s stock soaring.
When companies went astray and acquired businesses far outside their circle of competence, Peter Lynch coined the term “de-worsi-fication.” Although precious metals mining has nothing to do with running a movie theater, Hycroft Mining (HYMC 67.18 percent) was similar to AMC in one way: it was a cash-strapped company that couldn’t raise money despite having growth potential.
When hedge funds bet against it, AMC found itself in this situation, and small retail investors rallied around the stock, helping to keep shares afloat. If a quick squeeze is required, they might not be able to be contained.
This isn’t the end of the story. Based on the positive response to his deal with Hycroft, CEO Adam Aron says he’ll look for more “transformational” deals to spend his $1.8 billion war chest on.
This likely aided this morning’s rally, but it remains to be seen whether transforming AMC Entertainment into a conglomerate operating in various industries ultimately benefits movie theater investors in the long run.
Should you invest $1,000 in AMC Entertainment Holdings, Inc. right now?
Before you consider AMC Entertainment Holdings, Inc., you’ll want to hear this.
Our award-winning analyst team just revealed what they believe are the 10 best stocks for investors to buy right now… and AMC Entertainment Holdings, Inc. wasn’t one of them.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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