Even after reports of an impending bankruptcy filing, beauty and personal care company Revlon (NYSE:REV) stock is soaring in the markets today. REV is up more than 50% heading into the market close, just days after reports the New York-based company would file Chapter 11.
Last Friday, The Wall Street Journal reported the company was looking to reduce or restructure its $4.3 billion debt portfolio. The Journal estimated a bankruptcy filing could take form as early as this week.
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. The company even managed an earnings per share (EPS) loss of $1.14, well below consensus estimates around -$1.66 per share. While the company was still a ways away from wiping its debt clear, the news was at least a bullish indicator for REV investors.
Since the company’s bankruptcy announcement, REV has been a tenuous buy at best. The company is down more than 60% over the past month, and more than 80% year-to-date.
What’s behind the beauty brand’s surge today?
REV Stock Soars on Short Squeeze
Revlon appears to be the latest short squeeze candidate making its fated voyage. Indeed, Revlon ranked in the top 15 of Fintel’s short squeeze leaderboard this week.
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.
The makeup-maker’s stock shot up as high as 100% in the green at one point today. While it’s since come down, Revlon continues to experience substantial volatility. Whether REV ends up the next meme-stock darling, remains to be seen.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
