AMC Shares Fall After Iceberg Research Post Short Position

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An AMC theater is pictured amid the coronavirus disease (COVID-19) pandemic in the Manhattan neighborhood of New York City, New York, United States on January 27, 2021. REUTERS / Carlo Allegri

July 2 (Reuters) – Shares of AMC Entertainment (AMC.N) closed down 4% on Friday after short seller Iceberg Research tweeted it had made a bearish bet against the operator’s shares of the cinema chain.

The so-called meme stock closed at $ 51.96 after falling nearly 12% to $ 47.77 in morning trading after Iceberg’s tweet that he sold the shares short, implying to borrow stocks with a view to buying them back at a lower price to cover the bet.

“Our position is based on the fundamentals of the company and the fact that its stock price has been inflated by call options, which is always temporary,” said Arnaud Vagner of Iceberg in an email to Reuters.

Bearish investors forced to unwind in the face of rapidly rising stock prices helped fuel rallies this year at AMC, video game retailer GameStop (GME.N) and other companies popular on online forums such as Reddit’s WallStreetBets.

AMC shares, although well below their June 2 peak of $ 72.62, were still up more than 2,500% year-to-date after ending 2020 at $ 2.12.

Vagner said that while there are risks associated with betting against memes stocks, “every big rise is followed by a correction. It’s inevitable.”

Little is known about Iceberg, who publishes a blog with his research on WordPress. Vagner said Iceberg is a company that makes long and short bets, but declined to give further details.

Iceberg gained attention in 2015 for highlighting what he called aggressive accounting practices at Hong Kong-based Noble Group. Commodities trader Noble denied the allegations, but then saw its profits plummet and was forced to sell most of its assets.

Vagner, who said he worked at Noble Group and in credit analyst roles at banks before launching Iceberg in 2015, declined to disclose details of the company’s short position.

AMC’s latest rally was aided by intensive trading of stock options, financial derivatives that give buyers the right to buy or sell stocks at a fixed price in the future, depending on where is the course of action.

As the share price skyrocketed, market makers who sold AMC options were forced to buy the company’s shares to offset their exposure, pushing the stock up in a phenomenon known as squeeze. gamma. Read more

AMC did not immediately respond to a request for comment.

“These memes stocks are so volatile in their trading that it doesn’t take much to get a big move up or down,” said Eric Handler, analyst at MKM Partners, whose AMC rating is “sell”. “with a target price of $ 1.

Handler said that AMC’s trading price multiple of 45 times its 2022 estimate for earnings before interest, taxes, depreciation and amortization (EBITDA) compares to a historical multiple of 9 times the EBITDA estimate for cinema stocks before the coronavirus pandemic.

“At some point I don’t know when it will inevitably be some kind of mean reversion with AMC. I don’t think it can consistently maintain a multiple of 45 times EBITDA.” Handler said.

Reporting by Akanksha Rana in Bengaluru and Sinéad Carew in New York; Editing by Dan Grebler and Grant McCool

Our Standards: Thomson Reuters Trust Principles.


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