Revlon has soared 456% since it filed for bankruptcy as retail investors seek to replicate Hertz magic
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- Revlon stock surged as much as 80% on Tuesday as retail investors pile into the cosmetics maker.
- Revlon declared bankruptcy last week, and since then its stock has soared more than 450%.
- Retail investors purchased more than $10 million in Revlon stock last week, according to data from VandaTrack Research.
In an attempt to replicate the magic of Hertz, which soared nearly ten-fold in June 2020 after the company filed for bankruptcy, retail investors are piling into shares of Revlon.
The cosmetics company voluntarily filed for chapter 11 bankruptcy last week, and since then its stock has skyrocketed 456% from its low reached on June 16. Shares were up as much as 80% in Tuesday trades alone.
The stock has seen intense buying pressure from retail investors in recent days, according to data from VandaTrack Research. "Retail investors have indeed ramped up their purchasing into Revlon, likely a result of them attempting to 'buy-the-dip' on the back of the bankruptcy announcements," VandaTrack's Lucas Mantle told Insider.
According to data from VandaTrack, retail investors gobbled up about $10 million of Revlon stock over the past week. The strong retail buying activity is also shown in Fidelity's top traded tickers, which show Revlon as the ninth most popular stock traded by Fidelity customers today, with buying pressure outweighing selling pressure as of Tuesday afternoon.
In a Reddit post last week, a user on Wall Street Bets compared the current setup in Revlon to Hertz in 2020, noting that the company has an iconic 90-year old brand and also has a high short interest of 37%. Today, Revlon's short interest as a percentage of the total float increased to more than 50%, and Fintel identified the company as a top short-squeeze candidate.
"Is there a chance [Revlon] becomes a meme stock?" the Reddit post asked.
For now, the stock is acting in similar fashion to meme-stocks, as it prints an eye-popping rally even in the face of bankruptcy. Revlon is using the bankruptcy process to reorganize its capital structure as it sits on a lot of debt and struggles with declining sales due to people staying inside during the COVID-19 pandemic and intense competition from Kim Kardashian West and Kylie Jenner's makeup brands, among others.
"Revlon will likely use the bankruptcy process to shed much of its debt burden, reducing its cash interest expense and allowing it to invest more in its business... If executed effectively, Revlon could emerge from bankruptcy with a cleaner balance sheet and a better operating profile, improving longer term business prospects," Fitch's David Silverman told Insider.
The real question is if Revlon's equity holders will be left with anything after the bankruptcy proceedings, or if they'll be completely wiped out as the company prioritizes paying back debt holders, as usually happens in bankruptcy. For now, retail investors are betting their might just be some equity value remaining in the company.
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