AMC Entertainment (NYSE: AMC) stock price continued its remarkable sell-off on Thursday after the company moved to dilute its shareholders some more. The shares plunged to a low of $8.30, which was almost 90% from the highest point this year.
AMC further dilution
AMC Entertainment has been one of the worst-performing companies in Wall Street this year. This performance is mostly because of its habit of diluting its shareholders. Its outstanding shares have surged to over 198 million, up from over 58 million in September last year.
The company is committed to continuing its dilution trend. On Thursday, the firm said that it will raise additional capital worth $350 million to boost its balance sheet. This is a substantial amount considering that AMC has a market cap of $2 billion.
AMC has already diluted its shareholders by raising $550 million earlier this year. It also did that by converting its APE shares into AMC.
Share issuances are usually quite dilutive since they increase the number of outstanding shares. Worse, there is a likelihood that AMC Entertainment will issue more shares again in the next 12 months.
The decision to issue more shares came a day after the company published strong financial results. Its revenue jumped by 6.8% to $1.4 billion while the cash generated by its operating activity soared to $289 million.
These stellar results should be taken with a grain of salt. For one, the third quarter was loaded with some of the biggest box office releases of the year like Barbie, Mission Impossible, and Oppenheimer. It was also complemented by the recent movie by Tylor Swift, the most popular artist in the world.
Therefore, there is a high possibility that the fourth quarter will be weaker than Q2 since no major blockbusters are scheduled. Some of the top box office movies to watch will be The Marvels and Godzilla Minus One.
AMC is a good company with a major market share in the United States. This share gives it a good leverage when negotiating with its landlords. The challenge for the company is that it carries a lot of debt in a high-interest-rate environment. It also has a long history of diluting its stockholders.
AMC stock price forecast
The daily chart shows that the AMC Entertainment stock price has been in a consolidation phase in the past few months. It has remained between the support at $6.50 and resistance at $11.14. The shares have remained below the 50-day Exponential Moving Average (EMA).
This consolidation has continued at a time when the Average True Range (ATR) has crashed to the lowest point in more than a year. This ATR is a sign that the stock is not volatile. A closer look shows that the volume has remained quite high during this consolidation phase.
This could be a sign that the stock is in the accumulation phase of the Wyckoff Method. Therefore, while the fundamentals are quite weak, I suspect that the shares will bounce back in the coming months as it moves to the markup phase. This view will be confirmed if the stock moves above the upper side of the channel is at $11.15.
The alternative scenario is where the shares drops to the lower side of the channel at $6.50. A break below that level will see it drop to the support at $5.
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