AMC Is Now Back at Martin Shkreli’s Fair Value Estimate for the Stock as APE Shares Debut Unleashes a “Sell the News” Type of Move

AMC

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The disgraced former pharma executive, Martin Shkreli, had antagonized AMC (NYSE: AMC) apes last month by publishing his bearish thesis on the stock, pegging an $11 price target on the theater chain's shares. Since then, AMC shares surged nearly 100 percent to hit a recent high of over $25, only to give back all of these nascent gains as the meme stock mania 2.0 fizzled out, helped along by the implosion in Bed Bath & Beyond shares as well as the utter carnage that was the recent German PPI print, which hammered home the likelihood of structurally elevated inflation across the developed world for the foreseeable future.

As a refresher, Shkreli had boldly declared back in July that AMC could only expect to generate $3 billion to $4 billion in admission revenues and $800 million in EBITDA under his best-case scenario. Consequently, the former pharma executive accorded an $11 stock price target to AMC shares, based on a 7 percent discount rate and a return to $5 billion in total revenues. By the end of this decade, Shkreli saw AMC printing around $7 billion in revenues.

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AMC Preferred Equity (APE) Is Underperforming the Company’s Regular Stock by 56 Percent – Here Is How You Can Exploit This Arbitrage
Source: https://www.nasdaq.com/market-activity/stocks/amc

This brings us to the crux of the matter. AMC shares are down nearly 40 percent today, trading right around Shkreli's long-term fair value estimate for the stock. Today's carnage has been precipitated by two key developments.

First, Cineworld has announced that it is exploring the option of declaring Chapter 11 bankruptcy in light of its ongoing chronic liquidity woes. This development is having a knock-down effect across the entire entertainment space.

Second, AMC's preferred equity units have begun trading today. For context, while announcing its earnings for the second quarter of 2022, AMC had declared that it would issue a special dividend in the form of preferred shares:

"Shareholders will receive one AMC Preferred Equity Unit for each share of AMC common stock owned. Based on 516,820,595 issued and outstanding Common Stock, the Company expects to issue a dividend of 516,820,595 AMC Preferred Equity units."

APE Price

These AMC Preferred Equity (APE) units are currently up 14 percent in early trading, though trending downward at the time of writing.

Since the issuance of APE units had generated quite a lot of buzz among AMC investors, today's debut and the attendant carnage in the theater chain's common shares can be described as the classic "buy the rumor, sell the news" type of move.

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Do you think AMC shares still carry significant upside from this point onward? Let us know your thoughts in the comments section below.

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