Another Reverse Split?

Rite-Aid has been put on notice: its stock has been trading below the $1 borderline on the NYSE for the past month now, and must drag itself back over the line in six months or face delisting.

Faced with the same problem, Revlon made the same move just over a month ago - and their shares have recovered slightly since - but I commented at the time that it was the first time I'd seen that happen.

Given that Rite-Aid is still struggling to recover from its acquisitions, and the entire market is struggling to regain ground, I think it's unlikely they'll pull out of their nosedive in the near future, and a reverse-split will eventually occur.

I may be wrong about that ... or they may be able to effect a similar recovery after the reverse-split takes effect ... but I'm doubtful on both counts.

Weekly Summary

At ten end of a rollercoaster week on the markets, my portfolio has regained some ground:


Primarily, my gains come from Blockbuster Video, which rose nearly 40%, and Revlon, which gained 8% as investors regain confidence in these struggling firms. I'd hoped (and expected) that they would rebound sooner than they have - but I suppose it's better late than never.

Reverse split boosts Revlon shares

Rvlon (REV) shares underwent a 10-for-1 reverse-split today, as they had announced some time ago. And then, something very strange happened: the shares gained value.

It's been my experience that a stock that consolidates shares in fear of being delisted (or in hopes of upgrading" to a better exchange) generally experiences a massive decrease in market capitalization on the very first day - and while I will always be skeptical, having been burned several times before, I'm very pleasantly surprised.

I've considered moving the shares to my big-board portfolio, as the company is no longer a "penny stock," but have decided against that: even though REV is not a penny stock now, it was when I bought it, so I'll keep the shares where they are until I decide to sell them.

Weekly Summary

It's been a four-day week in the markets, and while the last couple of days have been brutal on the big boards, there's not been much change in my holdings:


Second quarter reports are trickling in, and I don't see anything particularly alarming, though the upcoming reverse-split of Revlon has me slightly edgy, I don't foresee needing to make any changes in my portfolio in the near term ... but then, one never knows.

Revlon plans equity rights offering

Revlon is continuing to show signs of improvement: today the company announced plans to pay down $170 million in their debt using cash raised selling off its Bozzano business in Brazil ($63M) and an equity rights offering to current common shareholders ($107M).

Following the announcement, the stock took a 6% dive (from $1.34 to $1.26), presumably fueled by panic from investors who don't understand the meaning of "equity rights offering" and assumed it would dilute the value of their shares.

If the dive had been steeper, I'd have snapped up a load of cheap shares to make a profit on the rebound, when cooler heads prevail. As it stands, I'll earmark some cash for when the rights offering goes through.

Unfortunately, the company also restated, in the same announcement, that it still plans to move forward with a 10-for-1 reverse split of its stock later this month to solidify its position (translation: to keep from being delisted), which suggests that management is nervous about its ability to effect a turn-around, at least in the short run.

Revlon Swings to Profit

Revlon has announced a small profit for second quarter 2008, defying analysts predictions for a loss, and reports that sales are continuing to grow:

According to preliminary estimates, profit in the three months ended June 30 totaled $20 million, or 4 cents per share, compared with a loss of $11.3 million, or a loss of 2 cents per share in the same period last year. Net sales in second quarter rose by 8 percent to $375 million compared with $349.2 million last year.

The stock has gained some ground as a result - or more aptly, it has regained some ground that it has lost so far this year. I'm still in the red on this one, but if they can continue to grow, slow and steady, my sense is that buying into REV is a move I won't regret.

Weekly Summary

I've made a few acquisitions this week, moving some of the funds that were laying fallow in my account into companies that I hope will be more productive - but other than that, the overall value of hasn't changed dramatically from last week. Given the turbulence in the market, breaking even feels like a small victory


About half of my holdings are now big-board stocks that have gone south: Revlon, Rite Aid, Blockbuster, and Krispy Kreme. This is unusual, as my typical tactic for a penny stock portfolio is to invest in smaller firms whose growth will come from scaling up their operations rather than larger firms who are seeking to solve balance-sheet issues - but then, I'll take profit however I can get it.

Revlon to meet NYSE price criteria via reverse stock split

Just after the bell on Friday, Revlon announced that ...

[the corporation] plans to regain compliance with the New York Stock Exchange's criteria of $1 a share average closing price over 30 consecutive trading days through its pending reverse stock split. ... the company's board had approved a 1-for-10 reverse split of Revlon's Class A and Class B common stock. Revlon has 6 months from the April 2008 notification to the exchange to bring its share price and 30 trading day average share price to $1.00 or above.

This is unfortunate news, and wholly unexpected in light of recent announcements that company insiders have been loading up on shares, expanding product lines are bringing increased revenue, and there is an ongoing campaign to revitalize the brand.

Especially with the penny stocks, actions speak louder than words - and while press releases may brag about the company's hopes, the start reality is that the executives, the board, and the shareholders do not have much faith that the company can pull out of its slump in the next six months, and that a reverse-split is the only measure that will save them from being delisted.

However, they haven't acted yet: the split was approved, but no date has been announced. When that happens, it's time to cut and run: it's extremely rare that a company reverse-splits only once: they RS, the price falls, they RS again, the price falls, they RS again ... it's a death roll.

Revlon chairman Perelman buys 500,000 shares

A follow-up to a previous post ... Revlon Chairman Ronald Perelman acquired another 500,000 shares of company stock. Combined with the 600,000 shares he purchased last month, this adds up to over million shares.

With micro-cap stocks that trade in the sub-penny range, that's really nothing remarkable - you can suck up a million shares with a small amount of cash - but since revlon is trading around $1 a share, this represents a significant investment.

While I don't have enough funds in this portfolio to justify pumping more cash into this company, I'm giving serious consideration to adding a significant position in Revlon to my main portfolio.

Revlon reports smaller 1st-quarter loss

In today's headlines:

Revlon Inc. reported that it narrowed its first-quarter loss, as lower expenses offset a sales decline in the U.S. Revlon's quarterly loss shrank to $2.5 million, or break-even per share. … Analysts, on average, predicted a loss of a penny per share.

It's always good news when a company beats predictions, and the share price this week has been on the rise. I don't expect that the difference of a penny is going to send it skyward, but it's a sign that the company is headed in the right direction, faster than expected.

Revlon chairman buys 600,000 shares

In a press release today, Revlon announced:

The chairman of cosmetics maker Revlon Inc. bought 600,000 shares of Class A common stock, according to a filing with the Securities and Exchange Commission.

This was an AP release, not a "PR Newswire" or some other no-name source, so there's a greater chance that he's buying in because he believes he'll make a profit, rather than to bolster stockholders' waning confidence.

Averaging Down

When it comes to penny stocks, I'm generally not a fan of averaging down - it's sending good money after bad to double your holdings in a stock that's plummeted in price and shows no sign of recovery.

However, when a stock seems to be picking up after a long slump and signs seem positive, it can be a good idea - and that's just the case where Revlon (REV) is concerned. The company seems to be getting back on its feet, and it's getting good buzz in the financial press, and since I have the cash lying fallow, I've decided to double down on this company ... here's hoping it pays off.

Reviving Revlon

An article in today's Wall Street Journal (here) details Revlon's plan to revitalize the brand and gain some of the market share that it recently lost in the wake of its dismal failure to successfully launch its Vital Radiance cosmetics line. The solution: back to basics.

The Vital Radiance line failed largely because of marketing missteps. For example, it didn't incorporate the well-known Revlon brand name, hired unrecognizable models as spokeswomen and cost more than consumers cared to spend. ...

This time around, Revlon is playing it more conservatively with its new mineral foundation, blush and eye shadow under its ColorStay cosmetics line ... other new products, including the line of customizable foundation as well as shades of Revlon nail polish and lipstick, also feature marketing that heavily emphasizes the Revlon name.

While the price of the stock has been hovering around one dollar for the past two years, its market share has slipped only one percent, and the company is running well into the black. It may take some time to dig themselves out, but I have a lot of confidence in its prospects for success.

Revlon (REV)

Company:	Revlon Cosmetics
Web Site:	http://www.revlon.com
Purchase Price:	$1.18
Current Price:	Click Here

Revlon corporation is a household name: they've been in the cosmetics business for ages, and were at one time a major player. You can still find the Revlon brand in drug stores, supermarkets, and major retailers.

The main reason I'm buying in is that Revlon is a major player and a highly profitable organization that's been around for ages. They're currently in a slump, but I expect that they will re-gear their organization and re-focus their brand, and the stock will recover as well.

I'm into this one for the long run, and plan to hold this stock indefinitely.