Traders piled into shares of Revlon, driving its gains from a record low to 650 per cent as individual investors looked to strike a quick profit, while ignoring the fundamentals of the troubled cosmetics giant.
The stock surged 34 per cent on Wednesday, bringing gains from an all-time low to more than 650 per cent as trading volume continued to soar past recent trends. More than 119 million Revlon shares have traded on average each day since bottoming — about 665 times the average daily volume in the past year prior to its boom.
Retail traders have been helping to drive gains, piling in nearly $US18 million ($26 million) over the past week, data from Vanda Research show. The manoeuvre is reminiscent of other bets in low-priced, debt-laden companies, such as Hertz, with investors rapidly trading Revlon shares after the company filed for court protection on June 15.
Revlo shares have surged 650 per cent since hitting an all-time low earlier this month.
Common stockholders have some of the weakest claims on a company’s assets in bankruptcy court, standing in line behind lenders, bondholders and other creditors who typically must be fully repaid before shareholders get anything. The proceedings often leave the shares worthless.
But Hertz captivated retail investors and Wall Street alike two years ago when traders fuelled a ten-fold rally after the car renter filed for Chapter 11 bankruptcy. The huge rally enabled the beleaguered company to raise fresh cash, and Redditors were validated after a winning bid to take Hertz out of bankruptcy delivered about $US8 a share for equity owners.
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Revlon’s following among retail traders armed with commission-free apps has picked up steam in recent days, with the ticker trending on popular chatroom Stocktwits and ranking among among the most-mentioned companies on Reddit’s WallStreetBets forum alongside GameStop. Revlon was the second-most bought asset on Fidelity’s platform in Wednesday’s session, lagging only Tesla.
Call options for Revlon to trade above $US10 — a level it hasn’t closed above since February — saw a spike in interest and were the most-traded derivative tied to the company in the session. The stock ended the day at $US8.14, the highest best close since early April.
Bloomberg
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