Brett Hawn had never really in­ vested in the stock market until his teenage sons tipped him off to GameStop earlier in the year. On Reddit, investors were talking up the distressed retailer and the AMC theater chain. Hawn, a 50­-year-­old network engineer from Phoenix, bought 50 shares of AMC, seeing it as a chance to fight back against the hedge funds on Wall Street.

“Every dollar that I spend is making them hurt a little more,” he says. “I’m OK with that. I re­member what happened in 2008 all too well.”

Reddit traders like Hawn have turbocharged AMC’s stock, vaulting it from $2 a share in January to nearly $75 last week. (The stock closed at $55 on June 7.) The surge has allowed AMC to boost its liquidity and put it in a better position to survive the pandemic, which caused it to lose more than $4.5 billion in 2020.

But on June 1, the company issued an extraordinary warning to its investors, advising that AMC’s valuation had become detached from reality, and that retail investors risked incurring “substantial losses.”

That did nothing to dampen the frenzy — indeed, the stock price more than doubled after the warning before dropping sharply and then shooting up again.

“This is an army behind this,” says Jessica Thalls Rivera, 31, a spokesmodel from Las Vegas, who is hoping that her AMC investment will help her put a down payment on a house. “It may be volatile, but it’s going to swing back up again because it has to. … The warnings do nothing except feed the frenzy of the fake news.”

And AMC chief Adam Aron has sometimes encouraged the Reddit crowd. On June 3, the cinema circuit’s CEO appeared on “Trey’s Trades,” a YouTube show for retail investors. In the interview, he said he had started following “1,000 apes” on Twitter — referring to Reddit investors — because he wanted to stay in touch with investor sentiment. And without endorsing any particular stock price, he said it would be a mistake to root against the company.

“It just really annoys me to no end that people bet against us,” he said. “I spend every waking moment trying to make AMC a stronger company, so the people who bet with us are the ones who succeed.”

Yet the company is still burning cash at a rate of more than $100 million a month and is heavily leveraged, with more than $5 billion in debt on its balance sheet. AMC also has $450 million in deferred leases, and most analysts believe it won’t be cash-flow positive for at least another year.

“I’ve been doing this for over 20 years, and I’ve never seen such a retail-fueled frenzy in the stock market before,” says Eric Handler, an analyst with MKM Partners. “There’s nothing rational with the way AMC’s stock is trading.”

Analysts like Handler believe that AMC’s shares should be trading at $5 to $10 a share and note that the company’s previous high of $35 per share was achieved in 2018 during a record-breaking year for the box office. Many believe that the theatrical marketplace will recover from the pandemic-era shutdowns, particularly with Hollywood studios again releasing blockbusters like “A Quiet Place Part II” and “F9.” But they also argue that the exhibition industry is a mature business, whose revenues rise or fall by a percentage point or two annually. Yet AMC is trading like a tech stock, not a business that makes its money by up-charging customers on popcorn.

“This cannot last forever,” says Chad Beynon, an analyst with Macquarie. “From a valuation standpoint, it makes no sense. Some people believe Tesla’s valuation makes no sense, but there is a leader and a vision and corporate culture there that make it possible to think they could become the biggest company in the world. It’s hard to see a future where AMC falls into that category.”

Other exhibition companies like Imax or Cinemark are not getting a similar boost. Moreover, the sector faces questions about its long-term viability. Streaming services like Netflix and Disney Plus are gaining in popularity and could cannibalize their business. At the same time, studios have used the pandemic to negotiate shorter theatrical runs for their films, ensuring that they debut on home entertainment platforms within 45 days of their cinema debuts, half the time they used to exclusively play in theaters.

That is not stopping AMC from capitalizing on the mania for its stock. The company raised $230.5 million in a share sale this month and filed to sell up to another 11.55 million shares last week.

“It’s happy days for AMC,” says Schuyler Moore, a partner at the law firm Greenberg Glusker. “Even if the shares come back to earth, the folks at AMC will enjoy their time floating up in heaven.”

Hawn says he would make enough to cover a month’s rent if he sold now. But he plans to hold on, hoping AMC will help him wipe out his debts. Rivera says she expects the stock to go to $100, and that even then, she might not sell.

“If a gaming company like GameStop can hit $400, why would AMC not break $100?” she says. “We’re hoping this gets us on a route to the American dream.”

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