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The Street
The Street
Business
Veronika Bondarenko

Revlon Declared Bankruptcy. Why Is Its Stock Soaring?

A funny thing happened on the way to Revlon's bankruptcy. 

By all accounts, it should have been lights out for Revlon (REV). On June 16, the cosmetics company filed for voluntary bankruptcy after collapsing under a $3.3 billon debt load.

When the news was announced, Revlon shares were at $1.95.

But in the days that followed the Chapter 11 declaration, something unexpected started to happen as investors started buying up company shares. 

On June 17, shares reached $8.14. Thety have remained near $7 in the days since. Analysts at Vanda research calculated that retail traders purchased up to $8.3 million in stock on Tuesday, June 21 alone, Reuters reported.

Shares of Revlon fell Thursday, giving up more than 14%. But even with that,  shares are still up more than 350% since announcing the bankruptcy.

Is Revlon The New Meme Stock?

So what is going on here? Both before and in the lead-up to the bankruptcy, Revlon rapidly caught the eye of online investors.

Many took to Reddit's WallStreetBets, the investing subreddit tied to the meme-stock craze in early 2021, to discuss whether the bankruptcy presented an opportunity.

"It is a pretty iconic brand," Reddit user pikatruuu wrote in a post created to generate discussion on June 16. "Is there a chance it becomes a meme stock?"

Immediately, other users jumped in to say that they were buying shares just to see where it all went. Many were pointing toward Hertz  (HTZZW) , which filed for bankruptcy in 2020 and saw a similar spike in the following period. 

After the rising stock recovered all its previous losses, Hertz was able to exit from bankruptcy by the summer of 2021.

While such turnarounds are rare, Revlon's famous name could lead investors to draw certain parallels. Founded in 1932, Revlon was especially popular between the 1960s and 1990s when it traded for hundreds of dollars a share.

"Lol I went to buy some [Revlon stock] and Fidelity made me enable Penny stock trading on my account," wrote Reddit user schmittychris.

Where Have We Seen This Before? GameStop, AMC, Hertz

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.

The sudden burst of attention is characteristic of a meme stock, which skyrockets not because of the company's performance but rather because of investor frenzy.

"The recent price moves are due to long buying and selling and not short selling and covering – in other words, a meme stock," Ihor Dusaniwsky, managing director at research firm S3 Partners, told Reuters.

Meme stock frenzy could be seen with video game company GameStop (GME) and movie theater chain AMC (AMC) -- in early 2021, GameStop shares soared by 680% in one month alone.

Is The Faith In Revlon Justified?

After certain meme stocks' astounding success, many investors are trying to find the next big name to throw their faith and money into.

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.

"The hope among retail buyers is that a buyer for Revlon could emerge and that the shares might mimic the spectacular gains Hertz achieved last year," wrote Forbes editor Andrew Barry. "[...] Revlon bonds, however, don't suggest that kind of optimism. They traded Wednesday at distressed levels: The company’s $450 million of 6.25% debt due in 2024 was changing hands around 10 cents on the dollar."

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