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what happened
stock of meme stocks AMC Entertainment Holdings (asset management company -4.01%), Fubo TV (Fubo -1.58%)and Smile Direct Club (SDC 6.79%) Big winners this week. They were up 14.8%, 27.4% and 20%, respectively, through Thursday’s trading.
When your stock is depressed and is severe short circuit, like these three. Even after this week’s gains, AMC Entertainment is down 25% over the past year, and its stock was 18.4% short as of July 15. SmileDirectClub fell 74%, and its shares were shorted by 21%. Meanwhile, fuboTV fell 87% and nearly 30% of its shares were sold short.
Two catalysts may have fueled this week’s rally. Positive macroeconomic news could lead to short covering while attracting retail investors to speculate on riskier names. Also, company-specific developments at these three companies likely drove above-average earnings.
so what
On the macroeconomic front, Wednesday’s consumer price index (CPI) report showed that inflation was lower than expected in July. Many took the numbers as a sign that post-pandemic inflationary fever might be on the way. After all, this is the first monthly report not showing month-on-month inflation in a long time.
When inflation fears subside, stocks rise — but economically sensitive, hit, and riskier stocks typically rise more.that contains meme stock like these three.
Market factors aside, all three have recently reported earnings: SmileDirectClub reported earnings this week, and fuboTV and AMC last week.
Are they reporting good numbers? No. In fact, all three stocks missed analysts’ revenue estimates. While AMC and Fubo did post better-than-expected losses, all three reported operating losses.
That doesn’t appear to be a recipe for a sharp rise in stocks. However, market sentiment is now focused on where it is right, with each company announcing some interesting new business developments.
AMC Entertainment Holdings
During last week’s earnings call, AMC announced a special dividend to existing shareholders, including a new unit of preferred stock, which will trade under the ticker symbol “APE” with accompanying non-fungible token (NFTs).
That’s a bit odd, as it’s unclear what the new preferred versus common stock will be worth. Still, the preferred stock starts trading on Aug. 22, so some may have been buying AMC this week in hopes of a preferred stock dividend.
Why create a new preferred stock class? Unfortunately, that doesn’t seem like a good reason. AMC management promised shareholders last year that it would not issue any new shares and further dilute the stock following a series of equity financings in 2020 and early 2021 to weather the pandemic.
However, it looks like AMC wants to raise more money and can get around this restriction by issuing preferred stock and then raising more money by selling more preferred stock. Management appears to be trying to placate common shareholders by offering them preferred stock ahead of a possible capital raise — though no one knows at what price AMC will issue the new preferred stock, or how much it might end up diluting common shareholders.
Fubo TV
Meanwhile, fuboTV has two big content-related news this week. On the one hand, SportsGrid Network, the first sports betting-focused 24/7 streaming network in the US, announced that it would launch on fuboTV. This comes after Fubo’s earnings report last week, when the company announced it would put its sports betting division under a “strategic review.” However, Forbes still seems to be leaning towards sports betting, just not pursuing this costly endeavor per se.
The positive news comes on the heels of Monday’s announcement of a multi-year premiere deal for Ryan Reynolds’ best-effort production company’s unscripted content. As part of the preferred transaction, Fubo issued $10 million of Maximum Effort FuboTV common stock.
The two deals appeared to spark optimism that Fubo could attract differentiated content to its platform, sending its shares soaring.
Smile Direct Club
In the end, SmileDirectClub was the only company of the three to report earnings this week, and investors were on a roller coaster ride. The company reported second-quarter results on Tuesday night, showing that both revenue and net loss per share missed targets, while also lowering its full-year guidance.
The stock tumbled on Wednesday, even though it was the day the CPI report was released and the broader market was surging. However, in the absence of major news, the stock then turned around and surged nearly 25% on Thursday.that is likely to be Outcome of the Big Short Squeeze.
The short squeeze may just be profit-taking for short sellers. It could also be a reaction to management’s announcement of a new Smile Maker 3D scanning app that will launch in the fourth or first quarter of next year.
An AI-powered smartphone app will allow potential clients to scan their mouths and then receive a detailed treatment plan. Currently, these customers must either visit an approved dentist or Smile Direct retail store or leave an imprint at home to begin the process. As a result, new applications developed over the years can greatly simplify the process and reduce customer acquisition costs.
How to do
Each of these stocks has a bull case, but the path is narrow. Investors in AMC Entertainment need to trust that movie theaters will continue to improve their financial health as the economy reopens, but in the age of streaming, that’s very uncertain — some might say unlikely.The idea of ​​a sports-focused online streaming bundle is attracting a small base of fuboTV subscribers, but it faces stiff competition from larger, well-funded peers such as letterYouTube TV. And SmileDirectClub is facing a difficult macroeconomic environment and stiff legal pushback from the state dental board. Even more worrying for AMC and SmileDirectClub is that they each have problematic debt loads, which are huge risks in an environment of rising interest rates.
So even with these eye-opening moves this week, investors should be aware that none of these three stocks are “safe.” While still well below all-time highs, each is still a highly speculative investment.
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