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Will AMC Initiate a Stock Buyback Program?

With shareholders calling on AMC to repurchase shares, could a stock buyback program be in the works?

AMC Entertainment  (AMC) - Get AMC Entertainment Holdings Inc. Class A Report shares continue to be highly volatile.The stock has been receiving a lot of short interest lately. And at the same time, shareholders are looking for ways to get AMC back on track again.

Figure 1: Will AMC Initiate a Stock Buyback Program?

Figure 1: Will AMC Initiate a Stock Buyback Program?

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AMC Shareholders Call for a Stock Buyback

The most recent news to come from the company is the announcement that AMC has bought a 6% stake in National CineMedia  (NCMI) - Get National CineMedia Inc. Report, an U.S. movie advertising company.

However, while the news has been well received by shareholders, there is pressure on social media for CEO Adam Aron to turn his attention to the fact that about a third of the company — about 32% of the company's free float — is on loan, which allows short sellers to bet against AMC stock.

Thus, according to some shareholders on social media, it's crucial that AMC start buying back shares.

Why Do Share Repurchases Matter?

The main goal of any kind of share repurchase program is to pursue a share price increase. The buyback often occurs when the board of a company realizes that their own shares may be undervalued.

This is most common in businesses that have large amounts of unused cash. Generally, these businesses hold a dominant position in their industries and see little room for growth. Just having that cash lying around can be costly. So buying back shares can be a way to put it to good use while also preserving the company's stock price.

Is There a Possibility of an AMC Share Buyback Soon?

AMC is no longer in danger of bankruptcy. But it still hasn't reached pre-pandemic levels yet.

During the most recent earnings call, CEO Adam Aron said that even though AMC is now able to play offense again, just getting back to pre-pandemic levels is still not enough. Thus, he set a new motto for AMC of "Recovery, Agility, and Transformation."

The motto can be translated into the very clear plans that AMC has when it comes to using its cash. Today AMC has about $1.59 billion in total cash and $10.75 billion in total debt. According to CFO Sean Goodman, the company's plans to use this cash for: (1) supporting operations, (2) repaying high-interest loans and deferred rent, and (3) investing in growth, etc.

It's clear that repurchasing shares is not a priority for the company right now. In addition to AMC still being in a recovery phase, the CEO has also recently mentioned that he is actively looking for more "value-creating investments" for the company's future growth.

However, Aron has a very close relationship with AMC's shareholders and understands that he must balance the interests of shareholders with those of the company. But it would be very difficult for Aron to initiate a buyback at current prices while the company is still in recovery mode.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)