Why AMC and Torchlight Energy Stocks Popped Today — but Petco Stock Dropped

What happened

Shares of AMC Entertainment (NYSE:AMC) and especially Torchlight Energy (NASDAQ:TRCH) are going “to the moon” today, having risen 11% and 44% (!) respectively in 11 a.m. EDT trading. In contrast, it looks as if Petco Health and Wellness (NASDAQ:WOOF) stock is in the doghouse — down 8.4%.

Yes, dear investor, you guessed it: Reddit is in effect again.

Red arrow goes down and green arrow goes up

Image source: Getty Images.

So what

There’s no particular substantive news that could explain Torchlight’s astounding 44% rally in the first 90 minutes of trading today. However, according to meme-stock tracker Stocktwits, this Plano, Texas-based penny stock producer of oil and gas, which booked sales of only $111,000 over the past year — probably less than your local Exxon station sold in gasoline — was the third-most-mentioned stock on its discussion boards yesterday, and that enthusiasm among Robinhood stock traders appears to be still driving gains today.  

Speaking of Stocktwits, you may wonder what was No. 1 on the discussion boards yesterday — and that was AMC. The news on AMC isn’t particularly great today. Lin-Manuel Miranda’s new film “In the Heights” apparently bombed over the weekend, bringing in just $11.4 million at the box office. But that’s OK with AMC stock traders. According to Reuters, by buying the stock regardless of how badly its business is doing, they apparently inflicted $512 million in losses on short-sellers as AMC shares soared Monday.  

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Headline: The short squeeze is working, and as long as it keeps working, you can expect people to remain excited about AMC shares.  

Now what

But what happens when the momentum fades, you may ask, and the short squeeze stops working — or, simply, all the profits have been made and the mo-mo crowd bails?

Well, Petco investors appear to be getting a taste of that action today. Yesterday, TheFly.com reported that a positive mention of Petco as a “value play with high short interest” on WallStreetBets sent Petco shares soaring nearly 18%. Today, however, the shares have already given back most of those gains.

And believe it or not, that actually makes sense. On the one hand, yes, Petco turned profitable last quarter and now has $12 million in trailing profits to its credit — and $237 million in positive free cash flow. On the other hand, with $10.2 billion in enterprise value, that still leaves Petco shares trading for a steep 43 times free cash flow.

Redditors who thought Petco a value stock yesterday may have finally done the math — and discovered that it really isn’t any such thing.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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View more information: https://www.fool.com/investing/2021/06/15/why-amc-and-torchlight-energy-stocks-popped-today/

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