In its 1980s heyday, Revlon was the makeup your mom swore by. Now, in bankruptcy, it’s a stock that speculators swear by, and shorts swear at. It nearly doubled in value August 1 and rose further in pre-market trading after a court approved its bankruptcy plan.
Revlon is still not exactly a going concern. Its jump gives it a market capitalization of just $463 million. This is the move of a penny stock. But the court’s action did let Revlon put $15.4 million into the pockets of “critical employees.”
This is a trade, not an investment.
Scenes From a Funeral
Revlon looked dead in June, when it filed for bankruptcy due to high debts and a snarled supply chain. It took $575 million of “debtor in possession” loans just to keep the lights on. The new loan is for $1.4 billion.
The trend had been apparent for years, in continuing losses and falling sales. Revlon is no longer even a top-10 makeup company. It lost the high-end of the market to LVMH (OTCMKTS:LVMUY), the mid-market to Ulta Beauty (NASDAQ:ULTA), the drug store end to Proctor & Gamble (NYSE:PG). Along the way Wall Street stripped it of cash and piled on debt, almost $3.4 billion by the end of last year.
By the time of the bankruptcy shorts had piled in. Suddenly it was a “meme stock,” with people who had borrowed stock on hopes of it going to zero squeezed on any sign of hope. Mostly dead is partly alive.
REV Stock: What Happens Next
Some sharp pencils will still be needed to make Revlon worth an acquirer’s interest. But it still had over $2 billion in sales last year. There is some value to be extracted.
The question is, how much value, and who will get it. If you own the common stock, you’re at the end of that line. The key to a successful speculation is not being greedy.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.