Revlon stock price has surged but it could be a bull trap

Revlon (NYSE: REV) stock price has made a swift recovery even as the company considers going bankrupt. The shares have risen by over 8% in premarket trading, bringing the total gains from last week to over 270%. This increase values the company at more than $203 million.

Revlon short squeeze

Revlon has had a major fall from grace in the past few decades. At its peak, the company was one of the biggest players in the beauty industry. At the time, it was valued at billions of dollars.

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In the past few years, however, the company’s performance has deteriorated such that it is now a shell of its former self. Its products are no longer resonating with young people who are more interested in beauty products sold by social media influencers. 

Therefore, after years of making substantial losses, it did not catch many investors by surprise when the company said that it would start bankruptcy proceedings. The initial report by Wall Street Journal cited people with knowledge to the matter. It pushed the stock to a record low.

The Revlon stock has bounced back for three main reasons. First, the company secured a $375 million loan that will see continue as a going concern. The firm said that the funding was needed to shore up supply chain problems. It said that it had just $6 million in cash against billions of dollars in debt.

Second, Revlon stock price rebounded after rumors said that Mukesh Ambani was considering making a bid for the company. The report was made by ET Now. Ambani and his Reliance company have not confirmed the story.

Finally, the rally is mostly because of renewed interest among day traders. In the past, we have seen shares of many bankrupt companies soar. For example, Hertz shares soared after the company went bankrupt.

Is Revlon a good buy?

Revlon stock price has done well in the past few days. However, there are several reasons why long-term investors should avoid the company.

First, it is unclear whether Ambani or any other company will be interested in the company. Besides, its products no longer have an appeal among young people.

Second, the company has a long history of losing money. It lost over $206 million in 2021 after losing another $619 million in 2020.

Finally, the company has more than $3 billion in debt. This means that the company will struggle as interest rates surge in the US.