AMC, other retail stock favorites jump; regulator signals concern

(Reuters) -Shares of AMC Entertainment Holdings Inc and other “meme stocks” supported by individual traders jumped on Monday, extending a rally in social-media favorites into a third week as message boards hummed with talk of squeezing Wall Street short-sellers.

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/File Photo

The sharp gains prompted the U.S. Securities and Exchange Commission on Monday to say it was looking into signs of market manipulation given the “volatility in certain stocks.”

The volatility has challenged analysts, and two of them in the past week have stopped covering video game retailer GameStop, whose shares soared in January in a retail-driven rally.

Cinema operator AMC, which almost doubled in last week, rose 12% to $53.85. BlackBerry’s U.S. listing climbed 11.0% to $18.60 and put it up 56% since the start of June. Canadian cannabis producer Tilray Inc’s U.S. listing surged 5%.

“AMC never ceases to amaze me. Just when I think that train is over, it jumps almost 10 points in the first 30 min of trading,” one poster on Reddit wrote.

AMC shares are up more than 2,500% for the year to date as it has courted individual investors, while GameStop shares are up about 1,305% over the period.

Some bearish investors retreated from bets against AMC on Friday when the stock fell 6.7%. Short interest slumped 74.5 million shares, or 14.9% of AMC’s float, on Friday from 88.2 million on Thursday, according to S3 Partners.

Institutional investors are largely sitting on the sidelines as the meme-stock rally continues.

Amateur investors “don’t need a reason,” said Michael O’Rourke, chief market strategist at JonesTrading in Stamford, Connecticut. “They’re trying to do the same thing they did last week. It’s a new week. They start over, the meme stock buyers, the wallstreetbets Reddit community.”

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Wall Street analysts have largely refused to raise target prices, which reflect their view of fair value for a company’s shares, despite the retail-investor driven rally.

Joseph Feldman, analyst at Telsey Advisory group, terminated coverage of GameStop on Monday. His last rating on the stock was “underperform,” with a $30 price target, about 88% below Monday’s level.

“We’re focusing on other areas,” said Feldman. “It’s hard to justify where the stock is trading relative to the fundamentals.”

Bank of America to stopped covering GameStop last week, citing “a reallocation of resources.” [nL2N2NP1O7]

AMC has been the top-traded stock among clients of brokerages Fidelity and Freetrade, used heavily by amateur and individual investors playing with their own money, data showed.

On trading-focused social media site Stocktwits, message volume related to AMC, a barometer of interest in the stock, rose 6.2% on Monday. BlackBerry topped the list of stocks mentioned on wallstreetbets, according to the sentiment tracker.

The SEC continues to “monitor the market in light of the ongoing volatility in certain stocks to determine if there have been any disruptions of the market, manipulative trading, or other misconduct,” an SEC spokesperson said in a statement on Monday.

“In addition, we will act to protect retail investors if violations of federal securities laws are found,” the SEC said.

Market participants have told Reuters that some Wall Street institutional investors are ramping up complex options trades that let them bet the shares will fall while keeping a lid on potential losses if they gain.

Among other meme stocks, headphones maker KOSS rose 12.3%.

AMC’s corporate debt has benefited from the rally in its equity, though not to the same extent in part because retail investors cannot buy corporate debt directly. The June 2026 12% bond, worth about $1.5 billion, is up by 364% since Jan. 1 and is the best proxy for the company’s equity value, said John McClain, high yield portfolio manager at Diamond Hill Capital Management. “Bond holders are suspect of the volatile swings in the equity and where the real valuation is,” said McClain. “Do you really want to be the investor who buys AMC debt and watches the equity come back to reality?”

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