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Revlon: Should You Buy the Latest Meme Stock?

Up over 150% in the last five trading days, Revlon shares are the latest meme play on the block.

Two weeks ago, cosmetics firm Revlon  (REV) - Get Revlon Inc. Report filed for bankruptcy. Due to its risky and challenging financial situation, short sellers targeted its stock.

But then Revlon found new favor with meme investors, and shares of the company started rising sharply. How far can the rally go?

Figure 1: Revlon: Should You Buy the Latest Meme Stock?

Figure 1: Revlon: Should You Buy the Latest Meme Stock?

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REV's Meme Story: An Obvious Short-Selling Target

Revlon's business history over the last few decades has been one of decay and high debt. The American cosmetics company was once priced at a historic high of $560 per share in 1998. Currently, Revlon trades below $8 per share.

Due to its evident business fragility and impending bankruptcy, Revlon shares have been an obvious target for short selling in the recent past — especially during the early innings of COVID.

The stock has been part of the meme frenzy, rallying in line with other meme stocks. After its rally in November 2021, Revlon shares had already fallen nearly 90% amid unfavorable macroeconomic pressures.

Figure 2: Revlon's trading performance and short interest history in a 2-year period.

Figure 2: Revlon's trading performance and short interest history in a 2-year period.

Revlon announced a voluntary filing for Chapter 11 in U.S. Bankruptcy Court. This provided it with a $375 million loan and brought even more bearishness to the attention of short sellers, causing the stock to fall nearly 50% in a single day.

The latest official short-selling data indicated that, as of May 30, almost 37% of Revlon's float was shorted.

Revlon's Short-Squeeze Play

Since filing for bankruptcy on June 16, Revlon stock has soared vigorously. It was up more than 317% over the following three trading days. Trading volume reached nearly 360 million at one point last week, with REV trading more than 46 times the available float and ranking among the most active trading stocks.

REV’s borrow rates skyrocketed to a peak of 171.825% shortly after the bankruptcy announcement, indicating only 15,000 shares available to be shorted, out of its lean float of 5.49 million.

Figure 3: Revlon's borrowed shares fee and availability.

Figure 3: Revlon's borrowed shares fee and availability.

About 85% of Revlon's 54.5 million outstanding shares are in the hands of insiders, with 9% in the hands of institutions, leaving only 6% of the total shares available for trading.

What’s Next for Revlon Stock?

The short-term future may still hold good gains for Revlon stock. The hype surrounding the stock is still high on sites like Reddit and StockTwits.

Revlon shares continue to be over-shorted, and speculation of a possible buyout by Reliance Industries has been a catalyst for the stock.

However, for the long term, take a look at REV's business fundamentals. With over $3.4 billion in debt and nearly half of that coming due in 2024, progressively rising interest rates should make the company's recovery even harder.

Nor is Revlon a meme phenomenon on the proportions of GameStop  (GME) - Get GameStop Corporation Report or AMC  (AMC) - Get AMC Entertainment Holdings Inc. Class A Report, whose loyal shareholders support the stock regardless of the company's fundamentals.

Therefore, Revlon stock is still an interesting play with a strong upward trend in the very short term as long as its meme hype persists. But it is likely that, as soon as the first signs of trading volume slowdown appear, short sellers should continue to bet heavily against Revlon stock.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)