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Meme stocks Bed Bath & Beyond, AMC and Cineworld falter

Meme stocks had a resurgence in August when Bed Bath & Beyond and AMC rallied in the middle of the month, but both stocks have since pulled back alongside shares in Cineworld as debt pressures mount. Are these stocks still worth watching?

Meme stocks were once again pushed into focus over the past couple of weeks, with the share prices of Bed Bath & Beyond [BBBY], AMC [AMC] and Cineworld [CINE.L] all making the headlines.

Bed Bath & Beyond shares surged to a high of $30 on 17 August from $5 at the beginning of the month — a 500% rise in value in only a couple of weeks. The dramatic increase was stimulated by the news that the company had secured financing to cover its debt. The shares, however, quickly dropped back down to $10 after a major shareholder sold his stake in the company.

AMC shares were trading around $25 in mid-August but have similarly fallen to $9.12 a share as of 31 August. The slump in value followed UK-based cinema chain Cineworld, which saw its share price fall 89.7% since the start of the month as it battled with bankruptcy fears.

Just over three years ago, Cineworld shares traded at 320p but have been decimated after Covid-19 restrictions dropped viewing numbers and accelerated a shift away from the big screen. The shares have since lost more than 98% in value and were trading at 3.4p at market close on 31August.

A volatile month for Bed Bath & Beyond shares

The US homeware chain has been at the heart of the retail investor frenzy in the past month. The share price has reacted dramatically to seemingly very little fundamental news, which has highlighted that the meme stock craze remains in full swing.

The shares were boosted at the beginning of August on news that the company had secured financing for its debt and that investment influencer Ryan Cohen had bought call options that the price would reach as high as $80 a share. The company, which is struggling with shrinking cash and declining sales, saw the share price rocket by more than 350% since the start of the month to close at $23.08 on 17 August.

In true meme stock fashion, however, the shares fell as quickly as they had risen, following the news that Cohen had dumped his entire stake in the company — making approximately $59m from the deal.

The shares lost over half their value in a matter of days, but they are still up 89.5% in the past month, with the shares sitting at $9.53 at market close on 31 August.

AMC and Cineworld tumble amid weak cinema outlook

Another retailer investor favourite, AMC, has been in the headlines after a similarly volatile month. The shares soared after the cinema chain reported stronger-than-expected second quarter results on 4 August. Revenue came in at $1.2bn for the quarter, exceeding consensus estimates of $1.17bn, while earnings per share came in at a loss of $0.20, which was better than the $0.23 that was expected. Even though the earnings were only slightly better than expected, the share price closed 18.9% higher the following day as retail investors regained confidence.

Shares then quickly tumbled after the AMC Preferred Equity (APE) started trading on 22 August. That day, the stock closed 42% lower than the previous close, and by the end of the week it was 49.1% lower. The preferred shares came as a form of a divided into shareholders’ accounts and while the company ensured it was not a stock split it does give the company a good tool to dilute the company further in the future.

The decline in the AMC share price was also sparked after rival Cineworld warned that is facing a possible bankruptcy filing after it struggled to cut the debt it was forced to take on in the pandemic. Cineworld shares lost 89.8% in value over the course of August, with the company owing nearly $9bn in debt as ticket sales flag.

Cineworld noted that a lack of Hollywood blockbusters has harmed customer numbers this year, with a relatively weak film slate in the third quarter not helping the industry. Covid-19 lockdowns accelerated this trend, with an increase in the number of films going straight to streaming platforms and not hitting the big screen.

While AMC has an equally high debt load, the shares have been fortunate enough to gain meme stock status from retail investors. This has been a lifeline for the company, which has been able to raise cash at more affordable levels to combat high debt threats.

 

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