With the novel coronavirus putting the brakes on global travel, travel-related stocks are under pressure. It doesn’t take a rocket scientist to figure that out. For some companies, like Hertz (NYSE:HTZ), they may not be able to survive. As a result, Hertz stock is down more than 92% from this year’s high as bankruptcy looms.
I am not a bankruptcy specialist or expert. Sometimes investing in these beaten down names works out. But more often than not, these are trades, not investments. Further, most of the time, bankruptcy candidates end up being tough holdings — no shock there.
J.C. Penney (NYSE:JCP), Chesapeake Energy (NYSE:CHK) and other duds have failed long-term shareholders. That’s even as they occasionally see large spikes in the share price. Rite Aid (NYSE:RAD) may be the one exception, as it continues to fight with all of its might. Even then, it may not be successful.
For Hertz stock, the conclusion is simple. This stock is not for investing, it’s only for speculation.
Breaking Down Hertz Stock
It’s been a very bizarre couple of weeks. Despite a number of companies on the brink, we’ve seen many of these bankruptcy plays rip higher. Hertz stock was one of those names.
After dropping below $1 on bankruptcy reports, the stock went on to rally almost 700% in just three trading sessions. Investors playing penny stocks were rewarded, (although that could create a false sense of confidence with the group).
For me, once bankruptcy is on the table, I know it’s not a stock for me. I’m looking for companies with solid business models and capital structures. Or those with dependable free cash flow and a strong dividends, or strong revenue and earnings growth.
Hertz stock doesn’t check any of these boxes.
Currently, analysts expect Hertz to lose over $6.70 per share this year — that’s good for a 568% drop vs. its 2019 results! That’s despite revenue forecasts calling for a slump of just 36%, to $6.3 billion.
That’s not what we want to see in an investment.
Final Thoughts on HTZ Stock
While Hertz has over $4.6 billion in current assets, it has just $1 billion in cash and short-term investments. That’s putting the pressure on the company, with more than $2 billion in current liabilities.
The problem is exacerbated considerably when looking at the bigger picture, though. As of the most recent quarter, total debt stands at more than $20.5 billion, while net debt stands at more than $17.7 billion.
For a company with a $200 million market cap, it’s not difficult to explain how much of a problem this is. With revenue drying up due to the coronavirus, Hertz stock has been mostly left for dead.
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Some more recent speculation suggested that CarMax (NYSE:KMX) or AutoNation (NYSE:AN) could step in as a buyer, although that catalyst seems to be fading. Even still, if that’s what investors are hanging their hat on, then we know this is an investment worth passing on.
Those that want to speculate on Hertz stock, be my guest. But just know, it’s more of a binary situation of existence. You may even be able to pull off a double or a triple. Just realize that it’s also possible investors wake up to see this name down 50% or more.
Fundamentally, I can’t back Hertz. Because there’s so much uncertainty of this front, it makes the technicals undependable. However, over the 50-day moving average could put $5 back in play. On the downside, a break of $1.11 — last week’s low — puts $1 on the table, and possibly lower.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
