CNBC host Jim Cramer has lauded gaming retailerGameStop Corp.GME 0.05%and movie theatre chainAMC Entertainment Holdings Inc.AMC 0.04%for their plans to sell more shares, saying that issuing shares is the “right move” in the long term.
What Happened: Cramersaidthe two companies' plans to offer new shares and raise cash to improve their operations should not be frowned upon. However, he noted that the “hold the line” crowd of investors that got stock tips from the WallStreetBets forum hates these offerings and despises anyone who defends them.
“AMC and GameStop need money. Raising capital is good for both companies and over the long haul, what’s good for the company should be good for the stock,” Cramer said on CNBC’s “Mad Money” show.
GameStop said itplans to sellup to 3.5 million shares in an “at-the-market” equity offering through Jefferies LLC. AMCsaidit is seeking shareholder approval to sell 500 million shares.
Why It Matters: Shares of heavily-shorted stocks such as GameStop, AMC Entertainment andRocket Companies Inc.RKT 0.09%skyrocketed have seen extreme volatility as retail traders belonging to the Reddit Investor forum r/WallStreetBets bid up the stocks to create a short squeeze.
GameStop stock has returned year-to-date gains of 879.3% as of Tuesday’s close, while AMC Entertainment stock has gained 381.1% during the period.
GameStop acknowledged the fluctuations in the market price of its stock of late and cited “short squeezes” as a risk factor facing the company in an SEC filing, alongside uncertainty related to COVID-19. The struggling brick-and-mortar retailer is expected to adopt a digital business model led by major shareholder Ryan Cohen.
Meanwhile, AMC has struggled amid the pandemic as the closure of theatres forced the company into acash crunch. The company, whichreopened98% of its locations in March, now expects the rollout of Covid-19 vaccines in the U.S. and the release of blockbuster movie titles in the coming months to boost sales this year.
Price Action: GameStop shares closed 1.3% lower on Tuesday at $184.50, while AMC Entertainment shares closed almost 3.9% lower at $10.20.