For some reason, it has become popular in the last year to trade the stocks of companies that are having catastrophic financial collapses. Among these is the beauty products company Revlon. Perhaps people believe they can make money because the price has been so volatile. It requires genius, guts, luck, or perfect timing to turn a profit.
Revlon went into Chapter 11 bankruptcy in June. It will be delisted from the NYSE shortly. The stock tripled a few days after the Chapter 11 filing. It has just collapsed.
The delisting news cut the share price of Revlon by 85% in a single day to $1.76. That is down well over 90% in less than two years.
Anyone with sense could have seen the Chapter 11 filing coming. Revenue has fallen for years.
After it ran out of money, Revlon received a $1.4 billion loan in August. However, the loan provision means that common shareholders may have nearly worthless stock. Revlon told the bankruptcy court as much later in August.
Gamblers, or investors who believe they are smarter than everyone else, have continued to churn the shares. If people buy in large enough share volume, a price change of a few pennies can mean a profit. It also means that the value of a position could be nearly wiped out in a day.
There is no reason to think Revlon will recover. Its product mix has been poor, making it a beauty products company with an eroding customer base. Beauty products are among the most crowded consumer categories in the developed world. Revlon has still a badly created product mix, and enough money to last a few months if results do not turn around.
Revlon’s stock is worthless, and that won’t change.
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