Cosmetics maker Revlon (REV) has been turning heads since its Chapter 11 bankruptcy filing last week. The company jumped 32% in premarket trading on Wednesday and managed to build on those gains going into Wednesday morning’s session. That joins two other major jumps on Tuesday and Friday ahead of the Juneteenth holiday observed.
Is this a dead cat bounce or the start of something big for a Revlon in recovery? I’m neutral on the stock right now because I can see both a bull and a bear case for this company. It’s not immediately clear, however, just which way the whole process will turn out.
The last 12 months for Revlon shares are almost completely down, at least until you throw in the last couple of days. Revlon hovered in the $10-$11 range for much of the latter half of 2021 until a spike sent the company to break the $17 mark in mid-November. That started the beginning of the end for Revlon, which plummeted sufficiently to challenge $1 per share just weeks ago.
The latest news for Revlon, though, features the company starting to come back from its post-bankruptcy brink. The company surged 91% on Friday and made a 62% jump on Tuesday before its latest jump in today’s session.
Wall Street’s Take
Turning to Wall Street, Revlon has a Hold consensus rating. That’s based on just one Hold assigned in the past three months. Revlon’s price target of $8.50 implies 0.8% upside potential.
Investor Sentiment Starting to Recover
Revlon is starting to see recovery from its bankruptcy filing. Better yet, there’s a matching recovery in investor sentiment. Right now, Revlon has a Smart Score of 4 out of 10 on TipRanks, the lowest level of “neutral.” This makes it slightly more likely than not that Revlon will lag the broader market, but it should be close either way.
Perhaps the biggest issue is hedge fund involvement. Based on the results of the TipRanks 13-F Tracker, hedge funds have not held an appreciable position in Revlon since September 2020. Given that it’s nearly two years later, that’s saying something, and it’s not good.
Meanwhile, insider trading is a different story. Over the last three months, insider trading has been heavily Buy-weighted, if only on a percentage basis. Insiders engaged in two Buy transactions during the whole period, and that was the sum of all insider trading.
Stretching back over the last year, meanwhile, tells a much different story. Sell transactions outweigh Buy transactions by six to two.
Retail investors, however—at least those who hold portfolios on TipRanks—smell opportunity. TipRanks portfolios containing Revlon shares have exploded over the last 30 days, up 45.6% across the period. In the last seven days alone, they’re up 29%.
The Stock-Market Equivalent of Powerball
When a person files for bankruptcy, it’s usually followed by a lot of sleepless nights and soul-searching. For a business, however, it’s a much different point. It often just results in some chair-shuffling, sometimes some layoffs, and the construction of a plan to turn things around.
A business filing for bankruptcy can even be regarded as a positive sign. With that plan to turn things around often comes an acknowledgment of certain market weaknesses.
For Revlon, as the Associated Press noted, it includes the acknowledgment that Revlon failed to keep up with changing trends. For example, Revlon kept its bright red lipstick front and center even as women spent most of the 1990s preferring muted tones.
This, in turn, presented opportunities for both established competitors like Procter & Gamble (PG) as well as upstarts like Kylie Jenner’s cosmetics brand to step in and seize market share. So, now, Revlon is looking to make up for lost time and stage a recovery.
Here’s where things get a bit complex. Already, Fitch’s David Silverman is suggesting that Revlon may ultimately sell off several internal brands to get it back on its feet. This includes not only Almay and American Crew but also long-time mainstay Elizabeth Arden. Revlon has been considering divesting parts of its business since 2019, after all.
There are even some reports suggesting that Reliance out of India is looking to purchase Revlon outright. Reliance has made several deals already this year. Further, reports suggest that Reliance wants to bolster its position in the personal care and beauty supply markets.
Revlon, with its massive name recognition and its multiple sub-brands, would likely fill that bill nicely. There’s nothing concrete on that as yet, but the dots do connect.
Concluding Views
Right now, the big question is, “Can Revlon continue?” The stock has been on an upward tear. It took about a week to go from death’s door to being ready to challenge its highs for the year. It’s a safe bet that this is likely the result of speculators hoping to profit from the changes at Revlon.
There are certainly plenty of possibilities here. Even at Revlon’s current share price, around $8.50, there is still room for prices to go up. Yes, there’s currently no upside potential according to the analyst price target, but that’s only one rating.
That, in a nutshell, is why I’m neutral on Revlon right now. There are certainly plenty of scenarios where Revlon—and its investors—win. In some of these, they even win big.
There are also plenty where they lose, however. The sheer uncertainty involved leads me to stay out of the whole mess until it works itself out. Still, though, with 100 shares going for the price of a decent television, I can’t blame anyone who takes a flier here.
