Shares in movie chain AMC and video-game seller GameStop have risen to their highest level in months, as retail investors are once again piling money into certain stocks to try to catch short sellers in a squeeze.
AMC was changing hands at a new pandemic-era high above $22 US a share on Thursday, above the previous record of just over $20 it set at the end of January. The company, which runs a chain of 682 movie theatres mostly in the United States, has been hit hard by the pandemic, as it has been forced to close most locations or keep them open in a limited capacity.
Revenue came in at $148 million last quarter, down by 85 per cent from where it was before. And 99 per cent of the chain’s U.S. locations still have limited capacity due to the pandemic. More than one quarter of the international locations do, too.
But that hasn’t stopped the company’s stock price from doubling this month, fuelled mostly by a frenzy of retail traders trying to catch Wall Street firms off guard and on the wrong side of the buying momentum.
Known as short sellers, some Wall Street firms make money by betting that certain stocks will go down. When they are forced to reverse course and cover those bets against a rising stock, it can result in what’s known as a short squeeze as they are forced to buy into a market going higher and higher.
WATCH | How does short selling work?
One of the biggest short squeezes in recent memory happened earlier this year in GameStop, as retail investors forced Wall Street firms into taking billions of dollars worth of losses when they were caught short.
GameStop is also moving higher this week, with the shares changing hands at $243 on Thursday. That’s well shy of the $350 level they hit in February, but close to their highest level since March.
A year ago, Gamestop shares were trading for under $20.
Roughly 20 per cent of GameStop’s shares are currently being shorted, while about 17 per cent of AMC’s are.
Ihor Dusaniwsky with analytics firm S3 Partners, which tracks the short selling market, said “the building blocks for a short squeeze are in place,” for both companies right now.
“Whether it occurs is up to the market,” he said on Twitter.
Geeta Ranganathan, an analyst with Bloomberg Intelligence, said that trading in AMC at least “is being driven by retail investors looking to squeeze short sellers. Business fundamentals remain weak and uncertain at best as movie going is yet to kick off in a big way.”