AMC, the US cinema chain gave a blunt warning to smaller investors as it launched a new share sale.
The warning was given against purchasing “unless you are prepared to incur the risk of losing all or a substantial portion of your investment.”
Recently, the company revealed its plans to sell up to 11.6 million shares because of increasing prices in the “meme” stock popularised on social media.
AMC stock fell by 16.47% in early trading on the New York Stock Exchange.
It comes a day after the company updated its offer for retail investors, who can now claim a tub of free popcorn if they sign up for a regular newsletter.
According to many Wall Street analysts, AMC is already deeply hyped.
Moreover, many recognized traders have said they were steering clear of the stock, the latest target of many small-time traders organised on Reddit and other social media.
On Thursday, it said that it would sell up to 11.55 million shares of common stock.
And the money raised would be going towards “general corporate purposes”.
This could help them in paying off current debts or buying new cinemas. Its shares fell after the announcement.
This marks its second share sale in three days. AMC raised $230.5m (£163.3m) by selling 8.5 million new shares to the hedge fund Mudrick Capital Management.
Later, they sold those shares at a profit.
Why has AMC stock been rising?
As per the cinema chain operator the current prices imitated “market and trading dynamics unrelated to our underlying business“.
In the year to date, shares in AMC have climbed 2,421% – even though the movie theatres were closed due to the pandemic.
But the problem is that the small investors are trying to seize power from the Wall Street giants.
A wager of billions of dollars has been made by major hedge funds about the decline in the shares of GameStop and AMC.
And since then, they faced huge losses after amateurs, exchanging tips on social media sites like Reddit or Twitter, drove prices up in so-called “meme” stocks.
AMC said on Thursday that it did not know “how long these dynamics will last.
“Under the circumstances, we caution you against investing in our Class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment,” it said.
Analysts have also warned that the stock may be overestimated due to the rise of streaming and competition from other entertainment companies.
AMC has been among the biggest winners from a spike of interest in meme stocks, fuelled in part by a new generation of social media-centric small traders.