The response to Hertz’s (NYSE:HTZ) bankruptcy-protection filing has been absolutely fascinating. You’d think that the trading volume on Hertz stock would dry up, but in actuality it’s through the roof with tens of millions of shares changing hands on an average day.
That’s a counterintuitive reaction to a company that might cease to exist in the near future. Yet, it’s strangely normal nowadays as some folks are participating in the “bankruptcy trade.” Thus, shares of failing companies like J.C. Penney (OTCMKTS:JCPNQ), Whiting Petroleum (NYSE:WLL) and Hertz have become popular trading vehicles for speculators.
Speculator is a polite way of saying gambler, and traders should be aware of the risks involved with Hertz. There’s only one possibly good reason to own this stock, and that’s because you might want to take a very small position simply and basically treat it as a lottery ticket.
Keep your expectations super-low and prepare for the possibility that you might lose your entire investment in Hertz stock.
A Closer Look at Hertz Stock
The price action in Hertz stock is a textbook example of how the market is designed to trick people. From April 2018 to February 2020, the shares traded in what seemed like a predictable range between $12 and $18.
It’s an ancient trick as the market wanted to lull traders into a sense of complacency. Then the market did a classic head-fake, taking Hertz stock above its range as the share price jumped to $20. Some hapless traders probably called this a “breakout” but it was nothing more than a “fake-out.”
After touching $20, Hertz shares promptly tumbled to $3.38 by March 18 and then to $1.48 by July 17. What’s alluring about Hertz stock is that along the way, there were days when the share price popped by 5%, 10% or even more.
Maybe you’re nimble enough to anticipate and catch one of those green days. That’s not a strategy that I recommend attempting to replicate. Given the facts and circumstances surrounding Hertz, it’s probably best just to leave the stock alone entirely.
Not All Action Is Constructive
The spin doctoring is strong with Hertz as the company, soon after filing for Chapter 11, made sure to emphasize that the filing was “voluntary.” Technically that might be true as no one physically forced anyone at Hertz to sign the documents. Yet, it’s obvious that bankruptcy filing is an event of last resort.
At the same time, Hertz evidently wanted people to know that the company “took action to align expenses with significantly lower demand levels” through a number of cost-cutting measures. This makes it sound as if the company is doing the right thing by being proactive in the face of severe fiscal challenges.
One listed action was to reduce Hertz’s “planned fleet levels through vehicle sales and by canceling fleet orders.” Another one was to implement “furloughs and layoffs of 20,000 employees, or approximately 50% of its global workforce.”
Hardly Anything Left to Save
These actions might reduce the company’s expenditures in the short term. They should hardly be considered confidence boosters, though. After all, a significant reduction in the fleet means fewer cars available to rent and generate revenue.
Plus, a 50% workforce reduction means that the clients will, most likely, receive poor customer care. Don’t be surprised if the service is slower and less attentive to the clients’ needs. But don’t blame the employees, as they’re probably doing the best they can do in this dire situation.
As for Hertz’s fiscal situation, I’ll pass the baton to InvestorPlace contributor Muslim Farooque, who provided hard-hitting data in support of a decidedly bearish position:
“… the company’s asset base is weak, and it carries $6 billion in debt and $13.5 billion in third-party debt. It’s currently generating zero revenues and with obligated cash expenses of $100 million per week as per its recent filing.”
The Bottom Line on Hertz Stock
A clear-headed look at Hertz strongly suggests that the company not only won’t be saved, but isn’t even worth saving.
Be my guest and trade Hertz stock for quick gains if you’re feeling lucky. Just be aware that the share price will probably approach zero at some point.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
