APE Preferred Unit News and Forecast: AMC shares stumble as momentum wanes

APE preferred units issued as a bonus to AMC holders shows that despite hopes for a stimulus the opposite is happening. APE shares are a form of a 2-for-1 stock split, so to get a continued graph we add APE and AMC stock or just plain multiply AMC by two to get the new effective price. Doing that shows that AMC+APE has moved down to test support at the lower end of the trend line.

APE preferred news

Media pointed out yesterday that Jim Chanos has taken a spread position in APE and AMC stock as he points out they are more or less the same and should converge. "Functionally, the two securities are the same," Chanos said. "I would guess the Apes will be putting pressure on [CEO] Aron if the discount continues to make it freely convertible sooner or later," Chanos said. "That spread is economically an arbitrage."

He is long APE and short AMC. However, that may overlook the potential for dilution. APE stock can be increased as AMC does not need shareholder approval to issue more APE stock. Wedbush highlighted this earlier in the week when it lowered its price target on AMC from $4 to $2 based on the prospect of dilution. The investment bank writes, "While it makes little sense for APE to trade below AMC, we think that it reflects concerns over impending dilution. AMC is pre-authorized to issue up to 4.5 billion additional preferred shares of APE to raise cash."

APE preferred forecast

This has been an interesting and potentially useful tool to raise more cash. AMC does have quite a healthy cash position and so is unlikely to follow Cineworld (CINE) any time soon. It does have a large debt pile, however, which needs to be addressed in the longer term. APE stock could be harnessed to help in this regard. However, that again means we would shy away from investing in it. AMC has always been a momentum play. For now, that momentum has dried up, so wait for a return if you want to be involved. For the longer term, this is not one for me.

AMC stock chart, daily

The chart below is AMC +APE, effectively comparing the old AMC chart before APE was issued. We can see it has traded down to trend line support at $16.

AMC+APE chart, daily