AMC stock is soaring, but how is this related to the GameStop short from earlier this year?

AMC stock is soaring, but how is this related to the GameStop short from earlier this year?
Source: Brendan McDermid, Reuters
In two large transactions where leading members of the company sold their shares, AMC was able to accumulate US$800 million dollars from selling their shares.

  • Earlier this month, AMC stock was valued at its highest price ever: US$62.55.
  • While it may be difficult to understand, this most recent surge for AMC is kind of related to the GameStop incident earlier this year.

What GameStop incident?

  • At the beginning of the year, GameStop’s stocks began to go up at an unbelievably fast rate.
  • Around the start of January, the video game retail company stocks hovered at around US$15 before soaring as high as US$347 per share in March.
  • The interesting part of the whole rise in share prices was that it was primarily fueled by everyday common investors rather than big banks.
  • As more people invested more money into the company by buying shares, the higher the value of the company rose.

How do stocks even work really?

  • Think of it like this: Imagine there is a large cake in the center of the room that has been cut into exactly 100 pieces. The person next to the cake is selling each piece for US$1.
  • Well, word gets around that this cake is incredible and worth way more than US$1 a piece. So as the supply of pieces goes down, the price for each piece goes up.
  • In an oversimplified way, that’s how stocks/shares work for a company. Everyone wants a piece and the more people value the company, the more each share is worth.
  • Well, much like GameStop’s huge rally earlier this year, AMC’s stocks are going up primarily from retail investors who believe that the company is undervalued.
  • Most of these investors can be found on the subreddit r/SUPERSTONK which is like a successor to the popular subreddit r/wallstreetbets where the initial GameStop rally started.
  • r/SUPERSTONK was started mainly because users felt as if r/wallstreetbets had gotten too big.
  • When the GameStop stock rally became international news, the sub grew to over nine million users.
  • GameStop stocks are still at an incredible US$280 as of early June.

Are the stock’s values real?

  • One of the biggest criticisms of the GameStop and AMC rally is that investors are committing a large-scale pump-and-dump operation.
  • A pump-and-dump is an illegal and punishable investment strategy that is done by pumping up the value of a company by pushing a ton of money into it.
  • When the company reaches a value that is much higher than it should be, the investors dump, or sell, their shares so that they can walk away with a lot of money.
  • This is illegal because it can oftentimes weaken a company and hurt other investors.
  • But it’s hard to claim that these two rallies are part of a pump-and-dump operation since this strategy requires a significant amount of organization for the exit strategy or the “dump.”

What comes next for AMC shares?

  • The company has already sold some of the earnings it had made from the recent surge.
  • In two large transactions where leading members of the company sold their shares, AMC was able to accumulate US$800 million dollars from selling their shares.
  • The chief executive officer of the company, Adam Aron, has not sold a single share since he took his position at AMC and he remains optimistic about the future of the company.
  • “Between those two transactions we raised over $800 million of cash, not to line my pocket or anybody who works at AMC, but to put that money in the treasury of AMC to strengthen AMC and let AMC do more good things, to grow the company,” said Aron.

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