Shares of Revlon Inc continued their recent rocket flight on Wednesday, as the cosmetics and hair care company’s bankruptcy appeared to fuel a “meme”-like buying frenzy among retail investors.
After Revlon said on June 16 that it voluntarily filed for bankruptcy, the stock fell 13.3% to close at $1.95, but that was 66.7% higher than the record closing on June 13 at $1.17.
It jumped 47.9% in afternoon trading Wednesday. It is now up 359% since the day it filed for bankruptcy, and is up 666% from its record closing low on June 13.
Analysts at Vanda Research said that with Revlon short interest, or bearish bets on stocks, it jumped last week to 37.6% of stocks available for public trading, or free-trading. That made the latest “meme” stock a “perfect candidate” for the most speculative retail crowd, Vanda said.
“A rise in social council conversations and OTM [out-of-the-money] “Pending option volumes over the past week confirm that retail crowds are behind the recent moves higher,” Vanda analysts wrote in a weekly note to clients.
Compared to associate “meme” stock, short interest in AMC Entertainment Holdings Inc. AMC,
It represents 21.3% of the public offering and at GameStop Corp. GME,
24.6% of the public offering.
Vanda says the latest action in Revlon stock is similar to that offered by Hertz Global Holdings Inc. to bankruptcy in May 2020. The car rental company’s stock had fallen before and the day after filing for bankruptcy, then started to rise the next day, regaining everything it lost in the post-bankruptcy sale in just two weeks.
It finally emerged from bankruptcy on July 1, 2021.
Revlon said in its bankruptcy filing that it expects to receive $575 million in debt-holder financing (DIP) from its existing lending base, so it can continue to operate its business while reorganizing its capital structure amid liquidity constraints.
The company said in its quarterly filing in May that it posted a first-quarter net loss of $63.1 million on sales of $479.6 million and had $3.31 billion in long-term debt as of March 31.
“Consumer demand for our products remains strong – people love our brands, and we continue to maintain a healthy market position,” CEO Debra Perlman said in the bankruptcy filing. “But our difficult capital structure has limited our ability to deal with macroeconomic issues in order to meet this demand.”
Investors should keep in mind that in the event of bankruptcy, company stock could lose most, if not all, of its value, as debt holders get priority in payments over stock investors. The stock will be delisted, and over-the-counter (OTC) trading will likely start under a new ticker.
“Investors should understand that buying common stock of companies in Chapter 11 bankruptcy is extremely risky and can result in financial loss,” according to the Financial Industry Regulatory Authority, or FINRA.
Also, when a public company emerges from bankruptcy, the old shares are often cancelled, and only the new shares of the reorganized company expire at a value.
Revlon stock is still down 21.0% since the beginning of the year, while the S&P 500 SPX,
He gave up 20.4%.