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AMC shares fall after Iceberg Research discloses short position

Stock Markets Jul 02, 2021 06:21PM ET
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© Reuters. FILE PHOTO: An AMC theatre is pictured amid the coronavirus disease (COVID-19) pandemic in the Manhattan borough of New York City, New York, U.S., January 27, 2021. REUTERS/Carlo Allegri

By Akanksha Rana and Sinéad Carew

(Reuters) -AMC Entertainment shares closed down 4% on Friday after short-seller Iceberg Research tweeted that it had made a bearish bet against the theater chain operator's stock.

The so-called meme stock closed at $51.96 after falling almost 12% to $47.77 in morning trading after Iceberg's tweet that it had sold the shares short, which involves borrowing shares 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 its stock price has been inflated by call options, which is always temporary," said Iceberg's Arnaud Vagner in an email to Reuters.

Bearish investors forced to unwind their bets in the face of a rapidly rising stock price have helped fuel rallies this year in AMC, video game retailer GameStop (NYSE:GME) and other companies that are popular on online forums such as Reddit’s WallStreetBets.

AMC shares, while well below their June 2 peak of $72.62, were still up more than 2,500% year-to-date after finishing 2020 at $2.12.

Vagner said that while there are risks associated with betting against meme stocks, "any sharp rise is followed by a correction. This is inevitable."

Little is known about Iceberg, which publishes a blog with its research on Wordpress. Vagner said Iceberg is a company that makes both long and short bets but declined to give further details.

Iceberg gained attention in 2015 for highlighting what it called aggressive accounting practices at Hong Kong-based Noble Group https://www.reuters.com/article/us-noble-group-debt-focus/back-from-the-brink-how-noble-group-was-saved-from-an-iceberg-collision-idUSKCN1LK0GI. Commodities trader Noble denied the allegations but subsequently saw its profits collapse and was forced to sell most of its assets.

Vagner, who said he worked at Noble Group and in credit analyst roles at banks before launching Iceberg in 2015, declined to reveal details of the firm's short position.

AMC's latest rally was helped by heavy trading of equity options, financial derivatives that give buyers the right to buy or sell shares at a fixed price in the future, depending on where the stock price is.

As the share price skyrocketed, market makers who sold AMC options were forced to buy the company’s shares to offset their exposure, driving the stock higher in a phenomenon known as a gamma squeeze.

AMC did not immediately respond to a request for comment.

"These meme stocks are so volatile in their trading it doesn't take much to get a big move up or down," said MKM Partners analyst Eric Handler, whose AMC rating is "sell" with a $1 price target.

Handler said that AMC's trading price multiple of 45 times his 2022 estimate for earnings before interest, tax, depreciation and amortization (EBITDA) compares to a historic peak multiple of 9 times EBITDA estimates for movie theater stocks before the coronavirus pandemic.

"At some point in time, I don't know when that'll be, inevitably there has to be some type of mean reversion with AMC. I don't think it can permanently sustain a 45 times EBITDA multiple," Handler said.

AMC shares fall after Iceberg Research discloses short position
 

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Comments (7)
Pupi Pi
Pupi Pi Jul 04, 2021 7:15PM ET
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Iceberg Research, no office in USA, office in Thailand, one employee. HAHAHAHA
Mr Stanley
MStanley Jul 04, 2021 1:01AM ET
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You got played Reuters. Either you didn't check facts or didn't want to check. Google out Iceberg Research.
Green Trade
Green Trade Jul 03, 2021 10:26AM ET
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What Iceberg apes bought more new Apes gets added every time it dips institutions got out more shares for Apes Blackrock and vanguard still holding. Gov tighthing regulations on shorts amc is looking really good to hit $100 to $300 range in 3 months.
Stephen Fa
Stephen Fa Jul 02, 2021 4:35PM ET
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Bulls are out of good money to continue squeeze
Mr Stanley
MStanley Jul 02, 2021 4:35PM ET
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really? this heavy, synchronized short ladder attack + options unhedging on Friday couldn't hold price below 50. also, FTDs are piling up, so it's rather short sellers who are running out of money. Every day there is 2/1 ratio for buyers vs sellers.
Mark Paul
Mark Paul Jul 02, 2021 2:01PM ET
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Ghey shorted it with out writing research which it pdd given iceburgs past shorts have all had research accompanying them. Maybe ken has a new bf
Sage Nathan
Sage Nathan Jul 02, 2021 1:44PM ET
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Huh what a dip. Its back to $51.3
Mr Stanley
MStanley Jul 02, 2021 12:37PM ET
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At least this time they report price drop after it really happened. Well done.
 
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