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Revlon Inc(REV-N)

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Why Revlon Is Plunging Again Today

Motley Fool - Wed Jun 29, 11:08AM CDT

What happened

Easy come, easy go. The hope that Revlon(NYSE: REV) could turn into another Hertz following its bankruptcy filing is fading fast, as the stock continues to sell off this week after a trading frenzy caused its stock to double in value.

Shares of the cosmetics company were plunging 20.8% at 11:14 a.m. ET on Wednesday as the appetite for such risky plays seemingly evaporates.

A makeup artist applying eyeliner to a model.

Image source: Getty Images.

So what

Car rental giant Hertz had pulled off a similar stunt when it declared bankruptcy last November, with its stock soaring 1,000% within just a few weeks.

Investors seemed intent to try the same thing with Revlon because it has few outstanding shares to trade, though over one-third of them are sold short. That's the formula Reddit traders look for when choosing stocks to pile into in a bid to ignite a short squeeze.

With Revlon, the company owns popular brands such as its namesake line as well as Almay, Cutex, and Elizabeth Arden. It's why traders were betting shares could generate more investor interest and initiate a comeback.

Now what

There had been a rumor late last week that Indian retail giant Reliance Industries might buy Revlon out of bankruptcy, but the company said it doesn't comment on such speculation.

With Revlon's stock falling again -- it's lost half its value from the level it hit during the surge -- traders who jumped on the coattails are hoping the buyout proves true to save their investment. That, of course, would all depend on what any offer price was, if there is even an offer coming.

Reliance evaded giving any sort of clue, which could mean a deal is in the works. It also might mean nothing other than what it says: Reliance doesn't comment on rumors.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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