Why Did AMC Stock Dive

AMC Has A Large Amount of Debt On The Books

AMC Entertainment's (NYSE: AMC) stock slid behind the market on Wednesday. By 3 p.m. EDT, the share price was down 6 percent compared to a 0.9 percent increase in the S&P 500.

The decline was likely as a result of shares that rose early in the week, investors likely took profits. However, it also announced that it was taking on additional debt.

What Does This Mean

AMC said it aims to raise $500 million in new loans to help finance the business. The funds will be used to pay off higher-interest debt that is now on the books, which is wonderful news for AMC's finances.

However, because of AMC's large debt load, which was approximately $5.4 billion in late September, investors have been concerned. AMC's new agreement merely refinances a portion of those debts at a lower rate.

The selling pressure was also fueled by investors' snaps to sell following the previous price surge. After AMC stock rose more than 14% on Tuesday following the firm's preliminary fourth-quarter earnings, investors began to anticipate more good news. The US market emerged further from pandemic traffic restrictions, according to that report, with solid ticket demand. In fact, revenue and adjusted profits were near two-year highs.

The Takeaway

The meme stock is likely to undergo greater volatility in the future, having plunged greatly so far this year after rising throughout much of last year.  The theater industry had been declining before the pandemic and may continue to do so in the future.

The good news is that AMC isn't in danger of running out of money. The firm has $1.5 billion in cash and additionally,  access to nearly $2 billion more in credit on its books today.

Despite that, AMC is certain to have a significant debt burden for the time being, which will act as a drag on cash flow and earnings. As a result, growth-oriented investors may wish to seek out firms with greater capital in new marketplaces when looking for their next stock purchase.

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