Revlon (REV) stock extends rally as traders flock to 'buy the dip'

Days after filing for bankruptcy, Revlon Inc.’s (NYSE: REV) stock rally continued from a record low to an 800% jump as individual investors tried to make a quick profit.

However, Bloomberg reported that traders may have overlooked the cosmetic giant’s weak fundamentals. The stock rose as much as 63% on Wednesday morning as trading volume continued to grow past recent trends.

Since hitting bottom, REV’s trading volume averaged 101 million shares daily, about 570 times higher than its average volume last year.

According to the report, which cited data from Vanda Research, retail traders have driven the rally, sweeping close to US$18 million over the past week. It added that the boom was similar to other debt-laden companies like Hertz Global Holdings Inc.

Also Read: Revlon (REV) files for bankruptcy, rising debts drown cosmetics giant

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Risky proposition for common shareholders

When a company files for bankruptcy, the common stockholders have limited claims on the company’s assets in court. They come behind lenders, bondholders, and other creditors, who must be paid first before them. Hence, these proceedings leave very little value to these shares.

However, two years ago, Hertz wooed retail investors and Wall Street when it filed for Chapter 11 bankruptcy. The huge rally helped the company raise fresh funds to swerve out of bankruptcy.

The Revlon ticker has been trending on forums. According to Bloomberg, Revlon was also bought heavily as an asset on the Fidelity platform. There were more buys than sell-offs, it added.

Bottom line:

Revlon shares traded above US$10 as call options saw a spike and were the most-traded derivative tied to the company in the first 40 minutes of Wednesday’s session. Revlon stock jumped as high as US$9.89, its highest since early March.