Hertz (NYSE:HTZ) filed for bankruptcy protection on May 22, becoming the latest casualty on a long list of companies facing liquidation due to the novel coronavirus pandemic. Hertz stock is on its way to zero.
It is a somber moment for the company’s shareholders and the broader investing world. Founded in 1918, Hertz operated in 150 countries and was a Fortune 500 company. It was a prominent fixture in the daily lives of millions of Americans and many more around the world.
But Covid-19 has had a devastating impact on the company and its finances. The closure of airports, a significant revenue stream for Hertz, severely dented its operating revenues.
In many ways, Hertz is a classic example of getting caught in the wrong place at the wrong time. When the pandemic hit and businesses shuttered, the company was already struggling and highly encumbered. As I will get to in this piece, I do not feel shareholders will gain much if the company liquidates — the most likely scenario at this point.
So if you haven’t disposed of HTZ stock yet, then it is time to do so now.
Why Is Hertz Stock Here?
There are several reasons why Hertz finds itself in this position, some Covid-19 related and some not. The company was already struggling when the pandemic hit. Ride-hailing apps were gnawing away at the company’s revenues.
Covid-19 brought massive cancellations, and the rest is history. Ultimately, Hertz is a company that found it difficult to evolve with the times. It could not match the pricing algorithms employed by Uber and Lyft and the ease of use of their platforms.
Will Shareholders Get Anything?
Creditors will most likely vote for a liquidation. It isn’t likely that we will see a recovery anytime soon, and they would want to get their money back while they still can.
Although there are signs of life, most experts agree that it will take a while for demand to return to pre-pandemic levels. Meanwhile, as demand grows sluggishly, the value of its car fleet is falling at a rapid rate.
If you include operating leases, the total debt stands at $21.1 billion, as of the latest quarterly results. After paying its all secured debt, the company will not have enough funds to repay its unsecured debt. Shareholders will stand to get nothing if the company goes ahead with liquidation, the most likely scenario since a reorganization or buyout is unlikely.
Final Word on HTZ Stock
When any company files for bankruptcy, there is usually a substantial drop in the share price. HTZ stock has strangely not gone down this route. InvestorPlace‘s Dana Blankenhorn did an excellent job of explaining this phenomenon. The reason why shares propped up to the level that they did was because of “Robinhood” traders. In Blankenhorn’s own words,
These are (mostly) young people using the Robinhood app who often take positions at night. There are over 13 million of them… Critics say Robinhood turns investing into a game, and with no commissions to pay, the kids are in over their heads. The number of Robinhood accounts with shares of Hertz quadrupled from 43,000 before the bankruptcy to as many as 171,000 in the middle of June. That June 8 $5.30 a share was a post-bankruptcy filing peak.
Forsaking fundamentals is never a good idea, as stockholders invested in Hertz will soon find out. The company recently had to call off its plans to sell up to $500 million of stock after the Securities and Exchange Commission criticized the move.
At the time when it was announcing the offering, the company had some telling words for its stockholders. In a filing, Hertz said stockholders should expect to get nothing if higher priority debtholders are not paid in full, rendering HTZ stock worthless otherwise.
If you have not dumped HTZ stock as of yet, do so now. There isn’t any scenario where you get your money back.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. He has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. He does not directly own the securities mentioned above.