This year, we have witnessed a brand new pump-and-dump scheme unravel in the U.S. stock markets. Retail investors on digital discussion boards like Reddit’s Wall Street Bets have been focussing their collective financial firepower in an effort to lift the share prices of a few favorite companies, usually heavily shorted stocks by hedge funds. 

Back in January, GameStop Inc.(NYSE:GME) surged an unfathomable 1,500% in the space of a few days after Reddit group “r/Wallstreetbets” (aka WSB), a longstanding subreddit channel created nearly a decade ago where more than 4 million Reddit users discuss highly speculative trading strategies and ideas, engaged in a crowdsourced pump-and-dump scheme that created massive volatility in the stock markets. The group exchanged unverified tips and poured in billions of dollars into heavily shorted stocks like GameStop with hopes to create a massive short squeeze for the hedge funds betting against them and cash out at their peak (GME short interest was around 150% when the squeeze hit.)

And now, beleaguered theater chain AMC Entertainment Holdings Inc. (NYSE:AMC) has become the latest target of WSB.

In something of a sequel to the GameStop mania but with a fresh twist, AMC has jumped 445% over the past 30 days and 2,320% in the year-to-date after a massive round of retail buying of the heavily shorted stock.

However, unlike GameStop, AMC’s management has not been shy to capitalize on the unexpected windfall.

On Thursday, the beleaguered theater chain sold over half a billion dollars in new shares in a matter of hours even after its management cautioned that its surging market price had little to do with the state of its actual business.

“We believe that recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business,” AMC said in its sales pitch to investors and cautioned against buying the shares unless investors were willing to risk “losing all or a substantial portion of your investment.”

Investors appeared unfazed by the obvious risk, and snapped up the new offering in just four hours, netting AMC a cool $587 million.

Meme stocks on a wild ride

What has been remarkable about AMC compared to other meme stocks is that its management has moved to quickly capitalize on those gains, embarking on a flurry of share sales that allowed AMC to raise more than $1.2 billion in the current quarter alone. You can hardly blame it. After all, unless a company is close to a merger, a rise in share price only benefits it if it can sell new shares in exchange for cash that it can then use for business purposes.

AMC woes date back to well before the pandemic forced movie theaters to shut down. The company has had to contend with dwindling audiences as people continue flocking to video streaming platforms such as Netflix Inc. (NASDAQ:NFLX), Amazon Inc.’s (NASDAQ:AMZN) Prime Video and Hulu. In 2019, AMC posted an after-tax loss of $149 million and has failed to turn a profit since Q2 2019. To make matters even murkier, AMC has $5.4 billion in long-term debt on its books as well as $5 billion in long-term leases.

AMC is hardly alone.

Meme stocks popular with retail investors have been on a tear, again: Hertz Global Holdings, Inc.(OTCPK:HTZGQ) has nearly tripled over the past month while GME has rallied 56% over the timeframe.

Other meme stocks that were banned on Robinhood after the February short squeeze have also been making big moves: Koss Corp. (NASDAQ:KOSS), Naked Brand Group (NASDAQ:NKD), Sundial Growers Inc. (NASDAQ:SNDL), and Trivago Inc. (NASDAQ:TRVG) have all outpaced the market by wide margins this year.

Interestingly, a basket of stocks heavily favored by smaller investors has been outperforming the broader market since March of last year, according to Vanda Research. This group, consisting of tech behemoths like Apple Inc. (NASDAQ:AAPL) and Tesla Inc. (NASDAQ:TSLA) alongside electric-vehicle maker NIO Inc. (NYSE:NIO) and digital-payments company Square Inc. (NYSE:SQ), has gained 75% since the beginning of March 2020 through Monday, comfortably outpacing the S&P 500’s roughly 36% climb.

By Alex Kimani for Safehaven.com