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Sep 11, 2017

S3 Analytics: Revlon Short Squeeze Could Get Ugly

Bearish bets against Ron Perelman’s Revlon (REV US) have been real “pretty” for short sellers so far this year, yielding a positive 54.9% return.  Now may be a good time to start taking profits prior to a potential squeeze.

Demand to short Revlon significantly spiked leading up to the company’s disappointing 2Q results announced the first week of August.  Immediately prior to the earnings call, the 7/31 exchange reported SI figure came in at 1.1 million shares, with $21.7 million at risk.

S3 Partners real-time data analytics now calculates short interest on a share and notional (real money at risk) basis to be 2.5 million and $42.1 million currently, multi-year highs.  This is a 125.3% and 93.6% increase respectively, on both a shares shorted and dollars at risk basis over the past month alone. 
The lending community have also caught on to this increased demand for borrow by bears since the beginning of August.  It now costs a short seller close to 150 basis points in financing per annum to initiate a short, whereas borrow rates were previously trading at cheapest possible levels for many years.   

With Ron Perelman proactively increasing his holdings of late, amassing close to an 84% stake in the company, only 7.9 million shares are now freely floated in the market.  This has led short interest as a percentage of float to rise to 31.9%, resulting in a days-to-cover ratio of over 10, or 2 weeks, for all shorts to unwind their exposure.

This battle between Ron Perelman who seemingly is buying what he believes is an undervalued stock, and short sellers on the opposite side of the aisle is turning into a real “beauty” contest, one that may turn ugly quick.   

Want deeper insight into the above analysis? Contact:
Director, S3 Partners
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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