Mudrick Capital Cashes Out Of 'Overvalued' AMC Entertainment Investment Just Hours After Buying In: Report

AMC Entertainment Holdings, Inc. AMC shares resumed their rally Tuesday after the theater chain announced a $230.5-million private placement to hedge fund Mudrick Capital.

Shortly after the share sale was disclosed, the buyer reportedly sold off the entire stake.

What Happened: Mudrick bought into the high-flying AMC stock with the sole purpose of boosting its cash position, and the fund has already disposed of the shares it bought at a profit, Bloomberg reported, citing a person with the knowledge of the matter.

See also: How to Buy AMC Stock

The purchase agreement between the parties requires the shares to be freely tradeable, the report said: in other words, there was no lockup period. 

The decision to cash out was due to the investment firm's determination that AMC's shares are "overvalued," having benefited from a "recent wave of day-trader enthusiasm," according to Bloomberg. 

After advancing over 116% to end Friday at $26.12, AMC stock gap-opened Tuesday's session solidly higher and rose to an intraday high of $33.53. The stock was trading up 20.38% at $31.42 at last check. 

Related Link: AMC Shares Pop On Upgrade: Why Analyst Sees Potential For Sharp Recovery

Why It's Important: Mudrick's purchase of 8.5 million shares for $230.5 million meant the shares were priced at $27.12, a premium over Friday's closing price of $26.12.

Assuming the shares were disposed at the peak price of $33.53, Mudrick may have raked in a profit of about $50 million.

AMC CEO Adam Aron defended the stock sale in a series of tweets, stating the sale represented a small percentage of the outstanding shares and a small portion of the trading volume.

Mudrick had previously invested in AMC as it navigated a turbulent phase during the COVID-19 pandemic that forced theater closures. Since the start of the year, AMC shares have had intermittent steep rallies thanks to a retail buying frenzy.

Related Link: Why This Analyst Says AMC Entertainment Stock Is 'Dramatically Overvalued'