Why Is AMC Entertainment (AMC) Stock Up 20% Today?

AMC Entertainment (NYSE:AMC) stock rose 20% over the weekend as “meme stock trading” came back.

The action began in GameStop (NYSE:GME). It rose 80% after Keith Gill, who calls himself Roaring Kitty, bought $116 million in shares. He also bought call options (aka bets a stock will rise).  

AMC stock opened this morning at $5.55 per share, its market capitalization rising to $1.6 billion.

Care to Play?

Meme stock trading, like skateboarding, is fun until someone gets hurt. People who lead others into trades often sell at the top, leaving many followers with losses.

The trend can also mean that a long-term market top is approaching. After the meme stock frenzy of 2021, stocks rose for just a few more months before selling off sharply through 2022. The artificial intelligence (AI) boom stopped the rot, and shares have been on fire since.

AMC was a big winner in the 2021 craze. CEO Adam Aron used the frenzy to sell shares against the movie theater chain’s debt. After selling all the shares he could under corporate bylaws, he sold preferred shares under the symbol APE. These became common shares after a court fight. Shares then sold off.

Since then, Aron has made other creative moves, such as showing film versions of Taylor Swift and Beyonce’s tours. This led to an attendance gain of 4.7% in the fourth quarter. The company still lost $182 million for the period, but Aron promised more such events are coming.

Aron has already taken advantage of the latest rally to sell $250 million in new shares. When it last reported earnings in May, the company reported borrowings of $4.5 billion.

Our Louis Navillier suggested last week investors should avoid the hype. “Investors should be extremely cautious with AMC stock,” he concluded.

AMC Stock: What Happens Next?

Given what happened after the last meme stock rally, the market looks overbought. Many shares could fall when the music stops.

On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.