For some reason, Hertz (NYSE:HTZ) stock remains relevant, even though its stock price has been flattened like a pancake. While the rest of the market has recovered, Hertz stock remains 93% off its February high.
That’s it … that’s all you really need to know.
The S&P 500 index and Nasdaq Composite Index are up 54% and 68%, respectively, from their March lows. Both have hit new all-time highs. And Hertz? Shares sit at their historic lows, as the folks who once “put you in the driver’s seat” wade deep in bankruptcy maneuvers.
Yet, in the game of “how low can you go,” there are still investors who are interested in this name.
Hertz Stock Fundamentals Are Shot
For some investors, the technicals are irrelevant. With or without that analysis, though, to hear a stock is down more than 90% in a few months should be the biggest red flag around. Clearly there’s a reason and it’s not good. But for those who don’t — or won’t — accept that at face value, let’s dig into the numbers a bit.
Hertz reported earnings on Aug. 10, missing on both top- and bottom-line estimates. The company — which I must reiterate is undergoing Chapter 11 proceedings — realized a net loss of $847 million in the quarter.
Revenue plunged more than 65% year-over-year, while debt remains insurmountably high. Free cash flow has been and remains pitifully low, too.
Current assets of $4.4 billion are up nicely year-over-year and easily outweigh current liabilities of $1.4 billion. But investors struggle to explain how Hertz will pay down its $12.9 billion in long-term debt. While that figure is down from $18.75 billion in the prior quarter, it’s still significant for a company with a market cap of $228 million.
Bright Notes Amid the Clouds
There are some bright notes from the quarter, though.
The company said that, “Global revenue in April, May and June, while down versus prior year, showed sequential monthly improvement as states and countries began to re-open.”
Further, CEO Paul Stone said, “The continued strong used-car market allows us to continue to sell cars aggressively as we right-size the fleet to align with market realities.”
That has been a saving grace, which Hertz can likely thank the U.S. government and Federal Reserve for. Without the quick stabilization of the economy, consumers and businesses would be ruined. To be sure, many are. But those that aren’t have been able to do things like buy used cars from fleet companies, giving Hertz a much-needed liquidity boost.
Bottom Line on HTZ Stock
My biggest problem — aside from the bankruptcy filing — is that HTZ stock faces an industry that’s stalling out.
While demand for travel rebounded nicely from the April lows through June, there’s been a plateau effect in place since July. Maybe car rental companies dodge some of that blow as consumers opt for road trips over flight-and-rental vacations.
But even in that rare event, summer is nearly over and business trips are being replaced with Zoom Video (NASDAQ:ZM). If travel doesn’t rebound significantly, companies like Hertz are going to continue struggling.
Just look at the chart to the right. There are multiple high-quality stocks up more than 100% from the lows and the overall market is hitting new all-time highs. Yet some investors want to pick over the carcass of dying companies.
I will be the first to admit that I do not find my edge in penny stocks. I am also not a forensic accountant, either. So a Chapter 11 stock is just not for me.
Maybe the draw for some investors is the pop one can see from $1 to $5 in just a few days. Perhaps it is the ability to buy 10,000 shares.
Investors should do what suits them, which is why Hertz stock isn’t a good fit for most. The technicals are out the window, the CFO left a few days after earnings, and the fundamentals are poor. I am simply not interested in Hertz stock.