REV with Nobias Technology: Case Study on Revlon
Recently, iconic consumer brand Revlon (REV) announced that it was filing for bankruptcy. The company’s press release stated that REV was voluntarily filing for Chapter 11 reorganization, stating: “The Chapter 11 filing will allow Revlon to strategically reorganize its legacy capital structure and improve its long-term outlook, especially amid liquidity constraints brought on by continued global challenges, including supply chain disruption and rising inflation, as well as obligations to its lenders.”
Within the release, Debra Perelman, Revlon's President and Chief Executive Officer was quoted saying: Today’s filing will allow Revlon to offer our consumers the iconic products we have delivered for decades, while providing a clearer path for our future growth. Consumer demand for our products remains strong – people love our brands, and we continue to have a healthy market position. But our challenging capital structure has limited our ability to navigate macro-economic issues in order to meet this demand. By addressing these complex legacy debt constraints, we expect to be able to simplify our capital structure and significantly reduce our debt, enabling us to unlock the full potential of our globally recognized brands. We are committed to ensuring the reorganization is as seamless as possible for our key stakeholders, including our employees, customers and vendors, and we appreciate their support during this process.”
Revlon (REV) shares hit 52-week lows of $1.09/share with news of this bankruptcy swirling. However, since making those new lows, REV shares soared more than 800% to recent highs in the $9.00/share area. Today, REV trades for $7.20/share, still up significantly from its post-bankruptcy headline bottom. And now, with shares experiencing significant volatility, investors and traders alike are questioning whether or not this bounceback is real, or if REV is going to prove to be yet another precarious “meme stock”.
REV Jun 2022
On June 10th, Nobias 5-star rated author, Mike Robinson highlighted Revelon’s bankruptcy issues, stating: “Revlon Inc, a cosmetics manufacturer, is preparing for Chapter 11 protection, according to the Wall Street Journal, citing sources familiar with the matter. Revlon shares dropped 46% and did not respond immediately to Reuters’ request for comment.
Last week, the WSJ reported that lipstick company Lipstick Maker began negotiations with lenders to avoid bankruptcy due to looming debt maturities. Revlon’s long-term debt was $3.31 Billion as of March 31st.” Nobias 4-star rated author, Shrey Dua, also touched upon the stock’s bankruptcy proceedings in an article published at Investor Place on June 14th.
Dua wrote, “Last Friday, The Wall Street Journal reported the company was looking to reduce or restructure its $4.3 billion debt portfolio.” He continued, “The news came as something of a surprise to investors, especially given Revlon’s relatively strong May 7 earnings call. The beauty company announced 8% net sales growth, to $445 million for the quarter ended in March. The company even reported a net profit of $24 million. This represents the company’s best first quarter adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in six years.”
Dua noted that the company’s -$1.14 earnings-per-share print during its recent quarterly report beat Wall Street’s consensus estimate of -$1.66/share, writing, “While the company was still a ways away from wiping its debt clear, the news was at least a bullish indicator for REV investors.”
Dua also touched upon the stock’s recent rally, in the face of the bankruptcy news. He said that the stock’s strong upside move appears to be due to a short-squeeze, stating, “Indeed, Revlon ranked in the top 15 of Fintel’s short squeeze leaderboard this week.”
Regarding investors’ puzzling, yet bullish rationale with REV shares, Dua said, “Short squeezes occur when a number of investors buy up a stock with a strong short interest, forcing short sellers to sell their holdings early to avoid theoretically unlimited losses. This is largely what happened in last year’s meme-stock boom as companies like GameStop (NYSE:GME) and AMC (NYSE:AMC) saw their share value skyrocket for seemingly no reason at all.”
Other credible Nobias authors have noticed this trend as well. With regard to the idea of a stock skyrocketing “for seemingly no reason at all” as Dua wrote, Nobias 4-star rated author, Veronika Bondarenko, recently posed the question, “Is Revlon The New Meme Stock?” She compared the massive retail investor interest and the post-bankruptcy rally that we’ve seen REV experience to Hertz (HTZ), which saw a similar story play out in 2020-2021.
With regard to the wallstreetbets crowd on Reddit, who she says have been driving demand for REV shares, Bondarenko wrote “Many were pointing toward Hertz (HTZZW) , which filed for bankruptcy in 2020 and saw a similar spike in the following period.”
Regarding the “meme stock” trend, Bondarenko quoted Ihor Dusaniwsky, managing director at research firm S3 Partners, in her article. Dusaniwsky said, "The recent price moves are due to long buying and selling and not short selling and covering – in other words, a meme stock.”
Bondarenko continued, “With Revlon shares down more than 51% year-over-year, it is still too early to tell whether this type of burst is a momentary flash in the pan or something that will continue.” She wrote, “Names that invoke nostalgia are the most likely candidates to see a turnaround. But at the same time, meme stocks tend to fizzle out by their definition while Revlon's difficulties appear to be persistent.”
And, looking at the Hertz story…while it’s true that HTZ shares saw a significant rally, from the $15/$16 area soon after its bankruptcy was announced to highs in the $35.00 area during late 2021, today HTZ shares trade for $17.47, meaning that many investors who bought into the stock’s “meme” momentum now find themselves underwater on their investments.
“Meme stock” or not, REV’s bullish short-term trajectory is still in place. Bailey Lipschultz, a Nobias 4-star rated author recently published an article at BNN Bloomberg which highlighted the stock’s surging momentum.
On June 22, 2022, Lipschultz said, “Traders piled into shares of Revlon Inc., driving its gains from a record low to 800% as individual investors looked to strike a quick profit, while ignoring the fundamentals of the troubled cosmetics giant.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Lipschultz continued, “The stock surged as much as 63% on Wednesday, bringing gains from an all-time low to 800% as trading volume continued to soar past recent trends. More than 101 million Revlon shares have traded on average each day since bottoming -- about 570 times the average daily volume in the past year prior to its boom.” He stated, “Retail traders have been helping to drive gains, piling in nearly $18 million over the past week, data from Vanda Research show.”
And, highlighting the risks that these investors are taking on, Lipschultz continued, “Common stockholders have some of the weakest claims on a company’s assets in bankruptcy court, standing in line behind lenders, bondholders and other creditors who typically must be fully repaid before shareholders get anything. The proceedings often leave the shares worthless.”
It is unclear how this story is going to end, but Lipschultz points out that REV could be in for a HTZ-like story in the near-term, writing “Revlon’s following among retail traders armed with commission-free apps has picked up steam in recent days, with the ticker trending on popular chatroom Stocktwits and ranking among among the most-mentioned companies on Reddit’s WallStreetBets forum alongside GameStop Corp. Revlon was the most-bought asset on Fidelity’s platform in the first half hour with buys outpacing sell orders.”
Right now the credible Wall Street analysts that Nobias tracks do not offer a consensus price target for Revlon shares. However, when looking at recent reports from credible authors that the Nobias algorithm tracks, 81% of them have expressed a “Bullish” bias for shares.
Disclosure: Nicholas Ward has no REV position. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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