AMC Entertainment shares slump nearly 7% as insiders continue to sell the movie theater operator's stock

Shares of AMC Entertainment slumped nearly 7% on Friday after two of the company’s executives sold significant portions of their stock.

CEO Adam Aron sold another $9.65 million in AMC stock as part of his estate planning, a move he warned investors he would make back in August. He sold 312,500 shares on Tuesday for an average of $30.86 apiece, according to a regulatory filing on Thursday.

This sale comes one month after Aron sold 625,000 shares of the company for around $25 million. He continues to hold around 96,000 shares, excluding about 2.9 million issuable in the future and based on performance targets.

Separately, AMC Chief Financial Officer Sean Goodman sold all of his 18,316 shares for around $565,000, according to a separate filing with the Securities and Exchange Commission. This does not include around 296,000 shares issuable based on Goodman’s continued service with the company or around 293,000 shares attached to performance goals and targets.

Aron recently announced that the company’s board approved a new stock policy for the company’s senior executives that would require them to hold a certain amount of AMC shares. Under the new policy, the CEO is required to hold owned or granted shares equal to at least eight years of salary. The CFO has to hold six years’ worth of salary in stock. Goodman’s unvested stock meets that requirement.

Representatives for AMC declined to comment.

“I think that while Adam Aron clearly communicated his intent to liquidate some of his position in AMC shares by year-end, many investors were caught off-guard by the extent to which he sold shares between early November and mid-December,” said Alicia Reese, an analyst at Wedbush.

“Sean Goodman of course already has more shares since he sold in November, and all of the executives will continue to accumulate more shares as part of their compensation packages, but they’re walking a fine line by cashing in on the elevated share price while the retail shareholders have committed to holding at all costs,” she said.

Eric Handler, media and entertainment analyst at MKM Partners, noted that the stock is currently trading 30 times next year’s estimated adjusted EBITDA and 22 times his 2023 forecast. AMC’s historical valuation has peaked at around 9 times the metric, he said.

Shares of AMC topped $72, an all-time high, in June, as the company gained support from millions of individual retail investors. In recent months, however, shares have more than halved. On Friday, the stock closed at $27.44, down 6.8%.

Prior to this surge of new investors, shares of the company hovered between $5 and $10, but fell as low as $1.91 per share in January when it seemed like AMC might not stave off bankruptcy.

The “meme stock” rally helped the movie theater chain, which had been hit hard by the pandemic and was laden with debt from previous acquisitions. The run up in its stock allowed Aron to secure enough cash to pay rents and even add more theaters. However, even with diversified content, like football games and concerts, and the company’s ability to accept cryptocurrency for tickets and concessions, analysts don’t expect AMC shares to maintain these lofty levels.

“The current price does not appear sustainable on a fundamental basis,” Handler said, “[It’s a] very opportunistic way for management to get paid.”

AMC executives and board members had previously unloaded more than $70 million in shares this year, according to a report from Bloomberg. While many of these sales were preplanned by management, it represents a massive shift for these executives, who sold only a fraction of this amount in previous years.

Aron, 67, has been very transparent with investors, repeatedly informing them that his stock sales are part of an estate planning move to diversify his portfolio. Other AMC executives have been less vocal about the reasoning behind their sales.

These stock sales are occurring at a time when insider selling has accelerated. A recent study by InsiderScore/Verity found insiders had sold more than $69 billion worth of stock this year — a record high. The changes have come as stock wealth has risen and at a time when Congress is discussing imposing significantly higher capital gains tax rates and making changes to estate tax policy.