Volatility worked in Revlon (REV) investors' favor this week, as the makeup company's stock rose 13% through Thursday trading, compared to a 2% spike in the S&P 500, according to data provided by S&P Global Market Intelligence. That rally only erased a small part of recent losses, though, and the stock remains lower by nearly 50% so far this year.
Revlon, which is going through a bankruptcy reorganization, is making progress refinancing its debt, although its long-term earnings prospects are still far from clear.
Revlon's bankruptcy filing sparked new interest in the stock from investors looking to potentially profit from a quick price spike. That speculation was amplified by news suggesting that the company might be a buyout candidate. Volatility around these short-term bets drove the stock higher at times recently, far lower last week, and up again this week.
The company also issued an update on its bankruptcy reorganization proceedings, saying in a July 7 filing with the Securities and Exchange Commission (SEC) that it has secured various loans to help it refinance some of its prior debt holdings.
It appears likely that Revlon will emerge from its bankruptcy process with more resources that will provide management with flexibility as they work on its rebound plans. Revlon owns many valuable consumer brands, and executives have said that their ability to monetize these assets has been hampered by the prior debt agreements.
A new, less complicated debt structure would, in theory, give Revlon a clearer path toward sustainable profitability.
But investors should still be extra cautious when considering buying this stock. Speculative trades have made it extremely volatile, meaning sharp downturns are just as likely as the type of spikes we saw this week. And Revlon's poor earnings outlook exposes it more to these declines, which can happen at any time.
That's why most investors will want to look for more successful businesses in the consumer staples space rather than taking on a risky position in Revlon.