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Revlon (REV) is not a company I typically think of when planning an investment strategy. But the rise in its shares over the last year has put the business on many trading radars. Looking at the fourth quarter report, I myself have to wonder if the story is now worth more investigation.
Sales decreased just under 2% once currency effects are stripped out. Net income as a whole increased 9% to 24 cents per share. Profit from continuing operations did a little better, jumping over 13% to 25 cents per share. This wasn't enough to satisfy the analysts. They were projecting 35 cents per share.
So, there wasn't an earnings beat, but there was positive operational cash flow in Q4, something that couldn't be claimed a year ago. Free cash flow was also on the right side of things. Money generation significantly improved during the entire fiscal year, too.
This is why I said Revlon is maybe deserving of a fresh round of due diligence; the situation could be improving. But be careful about buying just yet.
According to Reuters, currency woes in Venezuela will be taking a toll in the near future. You may recall that the same issue plagued Avon Products (AVP).
The earnings miss, in concert with the Venezuela problem, helped to drive a pessimistic response. The stock closed down 6.7% on Thursday, with strong volume backing the dip.
While I might be confident about employing a dollar-cost-averaging strategy with Avon, I'm not so confident about engaging that concept with Revlon. However, I believe putting the stock on a watch list wouldn't hurt. Once the bad price action settles out, you can check to see if a trading opportunity presents itself.
I would only categorize Revlon as a trade idea; holding this company for the long term is not what I would be after, there are better vehicles for that. And again, I would not rush in and buy now. There's too rich an amount of risk here, and I think the market is beginning to tire of risk.
Disclosure: I don't own any company mentioned; positions can change without notice.
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