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Don’t Monkey Around With APE
Today’s newsletter covers a critical issue facing investors.
AMC Entertainment Holdings Inc. (AMC) made a power move last month when it listed its preferred shares that go by the ticker symbol APE.
Right now, it’s one of the top ticker searches overall by financial pros, getting even more looks than Microsoft.
And that’s a problem because not only is this ticker an end-around current shareholders, it exposes you to a terrible company.
What is APE?
The AMC Preferred Equity Unit (APE) is designed to have the same economic value as a Class A Common Stock share. They were given to holders of AMC stock as a dividend on August 22nd. One preferred share was issued for each common share and had the same voting rights as a share of common stock.
Now, if you’re wondering why AMC would do this, the answer is simple. You see, it allows AMC to sell shares without requiring approval from its shareholders.
While you can convert APE into AMC, the AMC board and its investors must approve it.
AMC did not gain any proceeds from issuing APE. However, the firm may decide to sell its preferred shares at any time. Furthermore, its board can authorize issuing up to 5 billion preferred shares but has only approved 1 billion to date. At over $10 a share, AMC can generate billions from the sale of APE, which can be used to finance its bloated debt.
Why did AMC do this?
Issuing APE did not require board approval. Meanwhile, if the firm decided to make a secondary offering, it would have needed board and shareholder approval.
In a way, the issuance of APE acted like a stock split for AMC.
APE shares should trade at the same price as AMC and are essentially the same stock.
Is Ape A Good Investment?
APE is a meme stock.
In other words, it’s popular among retail traders on social media and message boards like Reddit.
There are 516 million outstanding shares of AMC, and retail traders own 71.5% of those shares.
One of AMC’s main appeals to retail investors is that it’s heavily shorted.
More than 25.9% of the float is short the stock. Retail traders have been buying call options hoping for a “short squeeze.” It happened in another meme stock, Gamestop (GME), and they’re hoping that lightning can strike again.
During the meme stock frenzy of 2021, shares of AMC exploded to a high of $44.61. Shares have gotten as high as $16.89 in 2022 and have traded at a low of $5.96.
Eight analysts cover AMC, and their average target price is $3.93. The firm’s revenues dropped from $5.4 billion in 2019 to $2.5 billion in 2021. The company has a profit margin of -21% and an operating margin of -7.9%.
But it gets worse. AMC has total debt of $10.4 billion and total cash of $965 million.
On the bright side, its latest quarterly revenues grew 162% from the same time last year. However, its operating cash flow is still negative at -$439 million.
While AMC and APE are great stocks for day traders, they make for terrible stocks if you’re an investor. The company has too many issues to justify an investment at this time.
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