Could AMC, GameStop or Sundial stocks drop to $ 0?
No matter how long you’ve been investing in the stock market, there is always something unique happening. Last year, it was Wall Street pushing its way through an unprecedented pandemic. Meanwhile, in 2021, it’s all about retail investors distorting stocks.
Starting in mid-January, retail investors in Reddit’s WallStreetBets chat room began to team up to face institutional investors and hedge funds with large short positions in selected stocks. Short sellers are investors who make money when stock prices fall.
Put simply, these retail investors bought stocks and out-of-the-money call options on stocks with high levels of short-term interest to create a short press – ie an event where the pessimists rush to the exit, which really kicks off some bullish action. Short cuts were responsible for sending popular Reddit actions like video game and accessory retailers GameStop (NYSE: GME), cinema chain AMC Entertainment (NYSE: AMC), and Canadian broth Producers of sundials (NASDAQ: SNDL) “to the Moon.”
While the year-to-date gains in this trio have been robust, it remains to be seen whether those gains have lasted. None of these companies have performed very well in the past year, and Wall Street’s consensus price target for the next 12 months calls for each of these stocks to lose more than 50%.
This begs the question: Could the most high-profile stocks on the market – AMC, GameStop, and Sundial Growers – possibly completely crumble and ultimately drop to $ 0? Let’s take a closer look.
Could GameStop go down to $ 0?
There is no doubt that GameStop has some serious challenges ahead. This is a business built on a brick and mortar business model that has worked extremely well for a good two decades. But with gaming pushing into the digital realm and GameStop stuck with its brick and mortar platform, it ends up behind the eight-ball.
But there is good news: I don’t think it will go down to $ 0 anytime soon, if ever.
GameStop ended fiscal 2020 (January 30, 2021) with approximately $ 635 million in cash. This compares to $ 146.7 million in short-term debt (due within 12 months) and $ 216 million in long-term debt. If GameStop wanted to completely write off its debt today, it could do so and still have $ 272.3 million in cash left. GameStop won’t because it needs that money to continue executing its digitally-driven transformation, but there is almost no path in the interim future (i.e. the next three to five years). ) where GameStop goes bankrupt and heads for $ 0.
Keep in mind that just because I don’t think it’s going to go to $ 0 doesn’t mean the stock is a buy. On the contrary, GameStop’s annual results were pretty bad, and its less than stellar future prospects. In the grip of coronavirus closures and the permanent closure of 12% of its stores, total sales fell 21% in 2020 despite a 191% increase in e-commerce sales.
I see a scenario where GameStop ultimately returns all of its Reddit-based winnings, which would bring it down to around $ 20 per share.
Could Sundial Producers Go To $ 0?
Marijuana might be one of the fastest growing industries this decade, but Sundial Growers has been largely left in the dust by fast growing US multi-state operators and even many of its Canadian peers, who have used the conclusion of agreements to their advantage.
And yet, there is also good news here: I don’t see Sundial’s share price heading towards $ 0.
As reported in the Company’s fourth quarter operating results, Sundial had C $ 719 million in cash (approximately US $ 572 million), as of March 15, 2021, and no debt. He also recently launched a prospectus to sell up to $ 800 million of common stock through market offerings (ATMs). Suffice it to say that the sundial is one of the richest in cash marijuana stocks, which should ensure it doesn’t go bankrupt and head for $ 0.
However, it is also one of the most poorly managed jar stocks. In order to clean up its balance sheet, Sundial issued a mountain of shares through direct registered offers, ATM offers and debt-for-equity swaps. In just five months, the company has more than tripled its number of shares outstanding, from 509 million to 1.66 billion. If Sundial fully executed its recent ATM offering, its total number of shares would easily exceed 2.1 billion.
Having a lot of money is good, but Sundial’s management team doesn’t have a specific plan for what to do with it. And with each capital increase, the shareholders fall into oblivion. Having that many shares outstanding will make it virtually impossible for Sundial to generate a significant earnings per share, and it could make the company a regular threat of delisting, with its stock struggling to stay above $ 1 per share.
Best of all, Sundial continues to lose quite a bit of money moving from wholesale cannabis to retail. The the arrow most certainly points down – but not at $ 0.
Could AMC Entertainment go down to $ 0?
Finally, there is the AMC Entertainment movie channel, which has been crushed by the coronavirus pandemic. The good news for AMC is that most states are starting to lift some of their coronavirus restrictions, which is allowing the company to reopen its cinemas. As of March 26, 99% of its theaters were open to some extent.
But unlike GameStop and Sundial, both of which have healthy net cash positions, AMC’s balance sheet is nothing short of a horror movie. In other words, I think there is a way where AMC could go bankrupt and see his worthless stock over the next two years. In my opinion, that makes it the most dangerous of these popular Reddit actions.
Based on AMC’s fourth quarter and full year operating results, the company has over $ 1 billion in cash. The majority of this capital ($ 917 million) was raised between mid-December and mid-January through the sale of nearly 165 million common shares and the issuance of more than $ 400 million in capital of ‘loan. It might sound like a lot of money, but that’s just peanuts compared to the reported free cash outflow of $ 1.3 billion in 2020 and the Wall Street consensus of $ 1.75 billion in operating losses. overall over the next two years.
Additionally, AMC finished last year with $ 5.7 billion in business loans and paid nearly $ 357 million in interest charges. The vast majority of its loans in 2020 were taken with interest rates ranging from 10% to 12%. With lending rates at historic lows, these ultra-high lending rates show how struggling AMC’s balance sheet and operating model is.
To complete it all, the business model of the company is upset by some streaming providers. Without the guarantee of cinematic exclusivity, AMC has virtually no chance of getting back on its feet.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.