What happened
Shares of cosmetics and beauty conglomerate Revlon (REV) were down 9.1% today as of 2:30 p.m. ET. No big deal, though. The new meme stock is still up nearly 90% over the last five trading days and up over 500% from lows earlier in June when rumors first emerged the company would be filing for Chapter 11 bankruptcy in order to restructure its debt.
So what
Revlon stock has been soaring higher due to a short squeeze -- an event caused when traders that have bet against a stock have to close their position, in turn increasing short-term demand for shares and causing the share price to rapidly rise. Many retail investors helped accelerate the surge higher by piling in in recent weeks.
But why all the optimism since the bankruptcy filing? For one thing, Revlon's dozens of brands are still healthy. In fact, sales increased 7.8% in the first quarter of 2022. The problem, though, is the company has been impacted by global supply chain disruptions. When you add in total long-term debt of $3.3 billion (as of end of March 2022), it becomes clear that Revlon is in dire need of some restructuring as it's struggling under the burden of interest payments.
Now what
The good news for Revlon is it has received new agreements from its creditors that will allow it to continue operating during its bankruptcy proceedings. As other large retail companies have proven over the years, it isn't easy to completely kill off an old and well-entrenched incumbent, even as consumer trends shift and shopping evolves because of e-commerce.
The bad news, though, is that Revlon is facing loads of competition from upstart lines of makeup and celebrity-backed cosmetics. Getting acquired by a larger conglomerate with deeper pockets might be the best long-term solution for Revlon. It was reported that Indian company Reliance Industries might be mulling a takeover offer.
For now, Revlon will remain a highly volatile meme stock as news rolls in on bankruptcy proceedings and related developments. Expect wild swings in stock price to continue.
