When a heavily shorted stock jumps higher in a rapid fashion, short sellers are forced to buy back borrowed shares to close out their short position and cut losses. The forced buying tends to fuel the rally even further.
Short sellers betting against AMC have incurred a $1.3 billion loss this week alone, according to the data.
Wall Street analysts have been baffled about the more than 1,200% jump in AMC's stock since January. The company, which has around $5 billion in debt and $450 million in deferred lease repayments, has seen revenue slashed significantly due to the ongoing
coronavirus pandemic.
While the movie theater business is rebounding, AMC is still facing steep headwinds. Though the company ended the first quarter with $1 billion in liquidity, the most it's ever had in its 100-year history, that cash on hand will only keep AMC stay afloat through 2022. The movie theater chain will also need audiences to return to cinemas in droves to make up for months of no revenue.
While initial box-office receipts are promising, fundamental elements of the movie theater business have changed in the last year, including theater capacity, shared release dates with streaming services and the number of days that movies play in theaters.
For the first quarter, AMC posted $148.3 million in revenue, down 84.2% from the same period a year ago. Its net loss shrank to $567.2 million, or $1.42 per share in the quarter, from a loss of $2.18 billion, or $20.88 per share, a year earlier.
Despite generating significantly lower revenue in 2021, AMC's valuation has nearly tripled thanks to these new retail investors. On the last day of 2019, AMC had an enterprise value of $5.8 billion, on Wednesday, that value stood at around $13.4 billion.