July 2 (Reuters) – Shares of AMC Entertainment (AMC.N) fell 12% on Friday after short seller IcebergResearch tweeted that it had made a bearish bet against the chain operator’s shares movies.
The so-called meme stock lost 8.9% to $ 49.40 after falling to $ 47.77 following Iceberg’s revelation on Twitter that he had sold the stocks short, which involves borrowing 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, founder of Iceberg Research.
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 2,000% 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.”
Vagner, a former credit analyst who founded the company 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 Parners, whose AMC rating is. “sell” with a target price of $ 1.
Handler notes that AMC’s trading price multiple of 45 times its 2022 estimate for earnings before interest, taxes, depreciation, and amortization (EBITDA) compares to a historic multiple of 9 times EBITDA estimates for stocks. cinema before the 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.” , did he declare.
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.
Reporting by Akanksha Rana in Bengaluru and Sinéad Carew in New York; Editing by Patrick Graham, Arun Koyyur and Dan Grebler
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