InvestorPlaceInvestorPlace

Why Is AMC Entertainment (AMC) Stock Up 5% Today?

The start of 2023 has been rather favorable for a wide swath of meme stocks. AMC Entertainment (NYSE:AMC) is no different, with this stock surging more than 60% year to date. Today’s move has continued this trend, as the stock did trade as much as 10% higher earlier today.

The reason for today’s move higher appears to be tied to an official date being set for shareholders to vote on the company’s note conversion. March 14 is the date shareholders will decide whether the company can convert AMC Preferred Shares (NYSE:APE) back into AMC common stock. This move will allow the company to essentially consolidate and simplify its equity structure, while potentially reducing its debt substantially. However, by converting its equity units to common stock, investors in AMC stock stand to be heavily diluted.

Let’s dive into what investors may want to make of this news.

AMC Stock Trends Higher, Despite Potentially Dilutive Action

It’s really hard to call whether this upcoming vote on the company’s note conversion is a positive or a negative. On the one hand, the potential for additional debt reduction does help bolster the company’s balance sheet and ensure the company’s viability as an ongoing concern. On the other, such a move would be highly dilutive to AMC shareholders.

Thus, the fact the company is allowing APE shareholders to vote alongside AMC shareholders could swing the tide in favor of this vote going through. It should be noted that AMC’s previous issuance of APE stock was done as a means of circumventing promises made to not issue more shares of AMC stock. However, effectively transitioning APE stock to AMC stock will erode this promise. Thus, it’s unclear if this move will signal more issuances in the future or not.

Personally, I think AMC stock remains far too risky for most investors to consider right now. Additionally, I tend to view this equity swap as negative for existing AMC shareholders. Thus, those looking to buy into a company with suspect fundamentals and an ever-changing capital structure may do so, but it’s not for me.

On the date of publication, Chris MacDonald did not have (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.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

More from InvestorPlace