Revlon (NYSE:REV) stock has been falling all day since Citigroup (NYSE:C) won a court decision against some of its creditors.
A federal appeals court has ruled that Citibank accidentally sent $500 million to several Revlon lenders and that all funds should thereby be returned. Reuters reports that: “In a 3-0 decision, the 2nd U.S. Circuit Court of Appeals in Manhattan said the lenders had not been entitled to repayment, and were on notice that the wiring was a mistake.”
As of this writing, REV stock is down almost 5% for the day after gradually trending downward since markets opened. Today’s news may not push shares down for too long but that doesn’t mean that investors shouldn’t approach it with caution. Let’s take a closer look at this summer 2022 breakout and why its meme stock status hasn’t made it profitable.
What’s Happening With REV Stock
Despite today’s victory, Citigroup lost this case the first time around. While acting as Revlon’s agent, it initially transferred almost $900 in prepaid funds to the cosmetics company’s creditors. As Seeking Alpha reports: “The defendants — including Brigade Capital Management, HPS Investment Partners, and Symphony Asset Management plus seven others — claimed that they were owed the payment since [Revlon] was in default on a loan.” That grim fact should have alerted investors to potential problems that loomed for REV stock.
Since then, defaulting on a loan has been the least of Revlon’s problems. As noted, the cosmetics retailer declared bankruptcy in June 2022, only to be propelled to meme stock stardom. The prospect of helping rescue a bankrupt company that Wall Street had long since disregarded likely appealed to the r/WallStreetBets crowd. While the short squeeze momentum helped push REV stock back onto Wall Street’s radar, it failed to keep it in the green. REV is currently down more than 20% for the month despite a sizable investment from Morgan Stanley (NYSE:MS) to the tune of 400,650 shares.
“A buyout of Revlon could possibly result in a short squeeze” InvestorPlace assistant news writer Eddie Pan speculated. “As of July 31, REV stock carries a significant short percentage of float of 35.6%, which is equal to 2.76 million shares sold short. In the event of a buyout, the stock could take off.”
The Bottom Line
So far, though, nothing that we’ve seen from Revlon indicates that the squeeze is likely to continue. Momentum has shifted as short sellers and contrarian investors have moved on to other things, likely bored with the flash-in-the-pan sensation that REV stock proved to be.
Today’s news likely won’t end up harming Revlon but it won’t help it either. The fact that C stock is up but REV is down should tell investors everything they need to know.
On the date of publication, Samuel O’Brient 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.
