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Pedestrians pass in front of an AMC theater in New York.
Scott Mlyn | CNBC

The price of AMC Entertainment stock has been cut in half from its peak amid a big rout in meme stocks this month as the reality of bubble-like rallies and failing businesses started to become apparent for Reddit-obsessed investors.

The movie theater chain’s stock tumbled about 13% to around $34 apiece on Wednesday, less than half of its all-time high of $72.62 in early June. The decline brought its month-to-date losses to 40%. GameStop, the original meme stock king, has fallen over 19% this month, while newcomers Clover Health and Clean Energy Fuels have plunged 34% and 20% in July, respectively.

While the pullback doesn’t make a huge dent in their monstrous 2021 rallies, it could be a sign that investors have begun to lose patience and rush for the exits as AMC’s and GameStop’s turnaround plans fell short for many. Meanwhile, their recent stock sales also diluted existing shareholders’ ownership to a great extent.

“While the declines in these asset prices has been rapid, their levels are still historically elevated, which could lead to further pain in the future,” Maneesh Deshpande, Barclays head of U.S. equity strategy and global equity derivatives, said of meme stocks in a note.

AMC shares are still up more than 1,500% on the year, and GameStop has a rally over 800% in 2021 under its belt. The massive gains largely came from a band of retail traders who coordinated trades on Reddit’s WallStreetBets’ chatroom, aiming to squeeze out short sellers. The rally has pushed GameStop to the Russell 1000 Index of large-cap stocks from the small-cap Russell 2000.

While short sellers betting against these meme stocks suffered huge losses earlier this year, they are not letting up. In fact, the short interest in many of these speculative names has gone up in recent weeks, according to data firm S3 Partners.

AMC has 13.8% of its float shares sold short after a 6.2% increase in shorted shares over the past week, S3 data said. The short interest in GameStop rose 9.4% in the past week to 13.3%, the data said.

‘Little hope’

AMC last week that it has tabled a proposal that would have asked its shareholders to allow the company to issue up to 25 million more shares. The decision followed a series of stock offerings in the second quarter that raised a total $1.246 billion for AMC.

Still, AMC is heavily leveraged with $4.5 billion of net debt and deferred rent at year-end, according to an estimate from Loop Capital Markets.

“AMC has little hope of gaining significant market share and will have to pay cash for acquisitions, debt retirement and executive compensation,” Alan Gould, analyst at Loop Capital, said in a note.

For GameStop, the video game retailer has raised about $1.7 billion in recent stock sales, aiming to use to proceeds to accelerate its e-commerce transformation. The company announced two high-profile executive hires from Amazon last month. Still, many remained skeptical of GameStop’s ambition to revive its business.

“Big Short” investor Michael Burry told Barron’s this month that he believes meme stocks are set to crash like the dot-com and housing market bubbles of previous decades.

None of the Wall Street analysts covering AMC and GameStop have a buy rating on the stocks, according to FacetSet.

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