Being on the brink of bankruptcy no longer seems to matter much in the U.S. stock market. While that might sound like the beginning of a cautionary tale about the state of investing in 2021, the reality is far stranger, according to a Bloomberg commentary. Redditors have bid up shares of AMC Entertainment Holdings Inc. and GameStop Corp. so much that it’s saved them — for now, at least — from deep trouble. They’re not the only troubled companies where social-media users are trying to conjure magic. In a broad benchmark of U.S. stocks known as the Russell 3000 Index, there are 726 companies whose earnings don’t cover their interest payments, a red flag to pros, according to data compiled by Bloomberg. These zombies are up an average of 30% in 2021 — trouncing the 13% return for the whole index — and 41 of them have doubled since New Year’s Eve. Even explicitly dire warnings don’t seem to register. A bankruptcy plan under consideration by GTT Communications Inc. would wipe out shareholders, which is typical in chapter 11 cases, Bloomberg reported May 24. Nevertheless, the company’s stock is up about 69% since then. Wall Street is starting to factor in the impact of traders drumming up enthusiasm for stocks on social media and Reddit threads. Theater operator AMC, which was on the brink of bankruptcy last year, now has a “path to a sustainable capital structure,” according to S&P Global Ratings, in part because it’s been able to sell new shares amid huge demand from retail investors. Video-game retailer GameStop is now debt-free for the same reason.
