Shares of Revlon (NYSE:REV) are up more than 30% today after the cosmetics giant was placed at the top of Fintel’s short-squeeze opportunity list.
REV stock has risen a staggering 303% in the past five trading days as speculation grows that the bankrupt cosmetics company is likely to be acquired. Since the New York City-based company announced it has filed for Chapter 11 protection from its creditors, Revlon’s share price has risen from $1.54 per share to more than $8. Talk that the stock could now be targeted in a short squeeze is only fueling investors’ appetite for the shares.
What Happened With REV Stock
Fintel, a provider of investment research, runs what it calls a “leaderboard” for stocks that are candidates to be caught in a short squeeze. In developing the leaderboard, Fintel considers factors such as the relative short interest, borrow fee rates and trading volumes of a stock. Revlon recently sat atop the short-squeeze leaderboard with Fintel saying the stock is most likely to be squeezed by retail investors, sending its share price sharply higher.
Fintel’s ranking comes a week after Revlon filed for Chapter 11 bankruptcy protection. In its filing, the cosmetics company said it is unable to fulfill one-third of its customer orders due to supply chain constraints and that it is operating under long-term debt of $3.31 billion.
The company listed assets and liabilities between $1 billion and $10 billion. Revlon’s 2020 sales of $1.9 billion fell 21% from 2019 levels. In the lead up to the bankruptcy filing, Revlon’s stock had fallen 83% on the year to trade below $2 per share.
Why It Matters
Since the bankruptcy filing, rumors and media reports have circulated that Revlon is now a takeover target and likely to be acquired by another company. In particular, there are reports that India-based Reliance Industries is interested. Those reports have helped send REV stock up more than 300% in recent days. News that the company’s shares are likely to be squeezed by investors is only adding to the sharp rise in the stock’s price.
However, REV stock could collapse if investors pump and dump it in coming days, or if a suitor for the company fails to materialize. If Revlon is left to rearrange its debt load and eventually emerge from bankruptcy protection on its own, its stock is likely to decline and could quickly fall below the $1.54 it was trading at when the company filed for Chapter 11. Also, the New York Stock Exchange has started the process to delist Revlon’s stock should the company fail to successfully reorganize and recover.
What’s Next for REV Stock
The runup in REV stock continues today, with the company’s share price up a further 30%. Given the huge rise in its price in recent days, a short squeeze certainly looks likely. The only question is: How long will it last? Past short squeezes show share prices can fall just as fast as they rise. As such, investors participating in the squeeze should be prepared to sell quickly if the fortunes of Revlon reverse course.
On the date of publication, Joel Baglole 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.