AMC Entertainment's (NYSE:AMC) incredible run-up in the last month may prove short-lived. After returning more than a triple in the month, Reddit’s WallStreetBets group may run out of buying power. It will take only a few group members to sell to trigger accelerating pressure on AMC stock.
AMC management wasted no time in taking advantage of its overpriced stock. Insiders took profits while the company issued shares to raise cash. Last week, the stock kept rising, indicating strong enough demand for the 450 million shares outstanding.
AMC’s underlying business is nowhere near healthy. Movie attendance is anemic. It will take a series of blockbuster movie releases to drive traffic into theatres. On the stock market, Reddit members must hold or keep buying the stock. If it runs out of cash or is forced to hold GameStop (NYSE:GME), another popular meme stock, then AMC stock will fall.
History tends to repeat itself. The AMC speculators will not have enough buying momentum to keep the stock trading at current levels. The company will bleed money because the business is broken. For now, AMC does not need more cash, so it will delay diluting its investors.
Eventually, losses will mount and the company will issue more shares, ending the rally.
