Revlon a multinational company dealing in cosmetics experienced a 245% four-day surge which filed for bankruptcy after amassing massive amounts of debt amid rampant competition has recalled another wild trade from back in the height of the pandemic: Hertz.
On Monday, Revlon crashed to an all-time low and led the troubled cosmetics maker’s stock to soar to 245% as speculators traded more than 350 million shares on bets of big returns. Sound familiar? Almost exactly two years ago, investors piled into Hertz after it decided to seek bankruptcy protection, triggering a frenzy that puzzled Wall Street since shareholders rarely get anything when companies file for Chapter 11.
Yet here we are. Revlon surged 91% in its biggest single-day gain on record after ET Now reported that Reliance Industries Ltd. is considering a takeover bid. Those gains built on a 183% jump from the stock’s low of $1.08 on Monday through Thursday’s close. Despite the gains, the stock has shed roughly three-quarters of its value over the past year.
While the company’s wild week is reminiscent of Hertz’s summer of 2020, it has come with minimal participation from retail traders, who have been known to flip these kinds of speculative stocks in hopes of striking it rich.
Retail traders snapped up just $4.1 million Revlon shares over the past week through Thursday’s close, data compiled by Vanda Research show. That’s a drop in the bucket of the nearly $7 billion in cash the group pushed into the broader market over the same stretch. The stock’s ticker has been mostly absent from popular forums like Reddit’s WallStreetBets and Stocktwits, another sign the latest rally doesn’t have the fingerprints of retail traders.
Revlon was the fifth-most actively traded stock on Fidelity’s platform, however, the number of sell orders outpaced those to buy the stock. Out-of-the-money call options, a retail trader favorite and driver of many previous meme stock rallies, were more active than normal, but paled in comparison to the flurry of trades seen across previous retail-fueled rallies.
Even with the stock’s rebound, Revlon is valued at just over $200 million, a far cry from the $3.7 billion in debt they listed in the bankruptcy filing. Included in that debt pile is $431 million of outstanding unsecured bonds that are trading for just six cents on the dollar, a sign those bondholders expect to recover little, if anything. All of Revlon’s debt obligations would get paid out full before shareholders see any of the money, meaning any traders stuck holding the stock in hopes of a rescue takeout will be left with an empty bag in a bankruptcy proceeding.
Revlon on Friday got the approval of a US bankruptcy judge to tap $375 million of new financing on an interim basis. The company will seek permission to borrow more money at a later hearing.
– With assistance from Matt Turner and Jeremy Hill.
Source: News 24
