Revlon Collapses

Revlon is among the most storied companies in makeup (its executives have always preferred the term “beauty”). Started in the early 1930s, it began to sell lipstick late in that decade. Revlon quickly became one of the most successful cosmetics companies in the world. The company was bought by financier Ron Perman in 1985. He took it public in 1996 and ran it into the ground. Revlon is bankrupt, and people who were fools enough to buy its shares will walk away with nothing. Creditors will own all of Revlon’s assets.

The most insane aspect of the stock’s recent movement is that people traded it aggressively to a price as high as $1.37 early this week. It quickly dropped to $0.57, which is still too high by 57 cents. Some investors timed their purchase and sale of the stock well enough to get suckers to buy it from them. Those unlucky enough to hold on to their shares will regret the decision, if they have not already.

The lesson from the collapse of Revlon is that stocks that move below $1 and continue to drop are rarely worth the $1 investment. Professional investors are adroit and take advantage of less sophisticated buyers. There is nothing new about the pattern. It is a wonder that people do not learn anything from past cases.

Another lesson is that just because a company goes under is no reason to assume it is a bad business. Revlon continues to have a strong brand. It had revenue of $468 million last quarter and still sells a broad array of beauty products. Its products are also still sold by large retailers and have a healthy online presence.

As far as consumers are concerned, Revlon remains viable. For shareholders, it is another issue entirely.

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