One of the more volatile stocks over the past month has been retail favorite Revlon (NYSE:REV). A month ago, REV stock traded around $1 per share. This stock then surged to more than $9 per share in roughly one week, before falling back down toward the mid point of this range. Today, Revlon is heating up again, gaining approximately 3% and trading back above $5.50 per share.
This move comes as equity investors in Revlon announced plans to petition the court for an official equity committee. This move could pave the way for retail investors to “retain material value at the conclusion of Revlon’s bankruptcy.” Just how much Revlon’s equity is “in the money” right now is unclear. However, this report is certainly a positive one for investors in this beaten-down stock.
Revlon is now trading as more of an option on survivability, takeover potential, or breakup value. Thus, it’s not surprising to see such wild moves in this stock of late.
However, it’s the potential underlying equity value of this company that’s raising eyebrows today. Let’s see if we can glean an approximation of what this stock might be worth right now.
Does REV Stock Still Have Underlying Value?
The crux of this request to set up an official equity committee is interesting. A law firm representing shareholders noted that MacAndrews & Forbes, a holding company wholly owned by billionaire Ron Perelman, the controlling shareholder of most of Revlon’s equity, has “conflicts of interest.” These conflicts of interest may preclude these investors from properly estimating how much value minority shareholders may get in a bankruptcy.
This fight between retail shareholders and controlling shareholders may only be heating up. For now, it appears this is the first step in what could be a contentious process. Bankruptcies in general aren’t enjoyable to go through.
Indeed, valuing the true intrinsic value of an equity position in a bankruptcy can be very difficult to do. With so many elements at play with Revlon, this appears to be a stock that’s got more hair than most investors will want to deal with.
On the date of publication, Chris MacDonald did not have (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.