There are always investors looking to make a contrarian play. Maybe that’s why you’re considering Hertz (NYSE:HTZ). Even though Hertz stock is in bankruptcy, you’re thinking you see something that other investors haven’t identified.
Just stop it, at least when it comes to Hertz stock.
Because the rental car company is not coming back — it was in serious trouble even before the novel coronavirus pandemic. And now that air travel remains down by 70% from last year, rental car companies that make the bulk of their case at airports are suffering.
Let’s look at why Hertz is a terrible investment. And if you’re still not convinced after reading the evidence, I’ll give you three other investment ideas that, while terrible, all have a better chance of giving you better returns than you’ll get from Hertz stock.
The Truth About Hertz Stock
Hertz is the nation’s second-largest car rental company, but it won’t be for long. The company filed for Chapter 11 bankruptcy protection on May 22, citing nearly $19 billion in debt and an idle rental car fleet of 700,000 cars.
The situation is so dire that the company’s largest shareholder, Carl Icahn, sold 55.3 million shares of the company at an average price of 72 cents per share, giving him a $1.8 billion loss on his investment. At the time, Icahn had a nearly 39% stake in Hertz.
A Chapter 11 restructuring means that creditors would have to settle for less than full repayment of Hertz’s debts, and the company could continue to operate. That’s better than a Chapter 7 filing, which means the company liquidates its assets.
Hertz tried to raise $500 million in a post-bankruptcy stock offering — which was weird, considering the company has repeatedly warned investors that Hertz stock will likely wind up to be worthless.
Investors on the trading app Robinhood were likely responsible for what happened next. As Hertz became one of the most-traded stocks on Robinhood, Hertz stock rose by a factor of 10, from 55 cents per share to $5.53. Even now, Hertz stock is trading near $1.50 per share, double for what Icahn settled for when he bailed out.
At the end of the day, Hertz’s bizarre stock offering failed, raising only $29 million as the U.S. Securities and Exchange Commission raised lots of questions. In a regulatory filing, the company says it now plans to seek debtor-in-possession financing in an effort to remain afloat.
Here’s the Financial Picture
Hertz says that it sold off 100,000 cars in June and July and needs to dump another 182,000 vehicles. It says it has $1.4 billion in cash on hand, and needs to see a recovery key markets, as well as an extension from creditors in Europe and the United Kingdom beyond Sept. 30.
For the second quarter, Hertz lost $587 million on $832 million in revenue. The per-share loss came in at $3.51, which was worse than the $2.33 per share analysts expected.
Investments That Are Better Than Hertz
Investing in Hertz is an awful idea. Even Icahn, who had nearly 39% of the company, knew it was past time to bail out and took a $1.8 billion loss just to shed his shares.
But if you are determined to throw your money away on Hertz stock, then maybe you’ll be tempted by these three ideas. Each of them is a horrible way to invest, but each is a better idea than Hertz.
Lottery tickets: The odds of winning the PowerBall jackpot are at 1 in 292 million, while the odds of winning the Mega Millions jackpot are 1 in 302 million. Both of those are truly awful, but I’ll give you a better chance of making your money with lottery tickets than in hitting it lucky with Hertz stock.
Nigerian prince scams: Yeah, these so-called solicitations that are always hitting your email are fake. And some people are still falling for them, with CNBC reporting last year that the email scams cost victims more than $700,000.
But if you answer, you can at least make a new pen pal, right? And if you’re smarter than the scammer, you can have some fun of your own.
Setting your money on fire: Seriously, if you’re going to lose money with Hertz stock, you’re better off setting it on fire. At least you’ll have a few seconds of warmth as your dollars go up in flames — and that’s more than you’ll get from HTZ.
The Bottom Line
Obviously, I went tongue in cheek with those suggestions, but it’s to make a point. Hertz stock is a bad investment. If you own Hertz, follow Icahn’s lead and bail out now, despite whatever loss you may incur.
And if you are thinking about taking a new position in Hertz stock, just back away. Get out before you do something you’ll really regret.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders. As of this writing, he did not have a position in any of the aforementioned securities.