On Nov. 9, AMC Entertainment (NYSE:AMC) CEO Adam Aron filed to sell 1.25 million shares of AMC stock as part of a pre-arranged trading plan he established in August.
Source: Shutterstock / mundissima
The first 625,000 shares were sold on Nov. 9 at an average price of $40.53 for gross proceeds of $25.3 million. The remaining 600,000 will be sold in a planned manner over the next few months.
“‘I can only imagine that naysayers and others who wish AMC harm will try to spread fear, uncertainty and doubt in this regard,’ Aron said, noting that even after his sales he will still own more than 2 million shares,” MarketWatch reported.
Well, had the CEO not made such a hostile comment about his selling of AMC shares – insiders sell shares for all kinds of reasons. In his case, he’s 67, so it would be nice to have some spending money in his retirement – I wouldn’t have written about the subject, but since he has, it might be time for those fortunate enough to have made money off the theater chain’s stock, to move on.
AMC Stock at $40 Is Pretty Good
Since AMC went public in December 2013 at $18 a share, it’s traded above $40 on three occasions, all of them in 2021. If you think that’s a coincidence, think again. The meme/retail investor/Reddit crowd/low-interest rates/ Covid-19 boredom created this unlikely scenario.
The CEO is merely trying to protect his capital, the first rule of investing. However, when he refers to naysayers, he’s definitely talking about me.
In 2021, I believe I’ve written about AMC on 10 occasions, including my latest commentary. The first time was in February. The most recent, other than today, was in September.
“You can buy AMC stock to impress all your Reddit pals, or you can make a smart investment and buy a down-but-definitely-not-out Midwest operator of theaters and hotels,” I wrote on Feb. 18.
MCS stock is up 21% since my article. That’s good, but not great, especially compared to AMC, which is up 626% in the same period. Considering MCS traded above $42 as recently as January 2019, I’m confident it will revisit those levels in 2022.
As for AMC, it better hope interest rates don’t move up too quickly, or it will be in a whole heap of trouble. It has $10.9 billion of debt or more than 50% of its inflated market cap of $20 billion.
In September, I discussed a number of problems faced by AMC. One of them was the fact that Disney (NYSE:DIS) CEO Bob Chapek said that his company wouldn’t commit to releasing new films exclusively in movie theaters beyond 2021.
The inference was that streaming would become a more important part of the movie business. However, if Disney’s third-quarter earnings are any indication, streaming might not be the nirvana Disney thought it would be.
I think that’s a bit extreme. Disney will be fine. It will, though, make it reconsider the move away from theaters, which is good news for AMC longs.
As I said in September, with too much debt and a business model that relies too heavily on the movie business, a Disney move away from theaters would be the final nail in its coffin.
The CEO’s 2 Million Shares
As Aron said, after the sale of 1.25 million shares, he’ll still have 2.08 million shares left [3.33 million shares less 1.25 million].
As I go through the proxies from 2016 through 2020, it shows the following stock ownership by Aron:
So, before Aron sold the 625,000 shares, where did the rest – 3.3 million less 1.26 million – come from?
Other than his base salary and annual incentive program, which are paid in cash, he has an equity-based incentive compensation program, which is paid in stock. These annual grants are split equally between RSUs (restricted stock units) that vest over time and PSUs (performance stock units) that vest based on performance.
In fiscal 202o, Aron received stock awards valued at $14.8 million. That was up from $6.5 million in 2019, and $5.5 million in 2018. The number was higher in 2020 due to Covid-19. In 2020, that amounted to 444,000 RSUs and 444,000 PSUs [you can find this information on Page 41 of its 2020 proxy].
So, that puts us at 2.15 million. I just need to find an additional 1.2 million or shares. On Page 43 of the proxy, I see the 2020 SPSU grants under the EIP (equity incentive plan) were 1.5 million. That brings the total to 3.65 million and close to the number mentioned in his Form 4 from Nov. 9.
So, most of Aron’s shares have come in the past 12 to 18 months. While front-line workers in the theaters were getting furloughed without pay or let go, he and the rest of the executives were getting stock grants up the wazoo.
Therefore, for Aron to pretend that he’s in this for the long haul, and is offended by naysayers who try to make a big deal of him selling some shares is a bit rich.
It wasn’t until the onset of Covid-19 that his shares started to accumulate. And now he’s cashing in.
I don’t blame him. I blame the board and Wanda, the company’s previous controlling shareholder, for giving away the store when not much has been accomplished other than not going bankrupt.
The Bottom Line
You absolutely should sell AMC stock. The writing is on the wall. AMC’s executives including Aron are going to keep cashing out well into 2022.
Don’t be their patsy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.