After it became apparent that the novel coronavirus would no longer be a foreign crisis, a few key sectors took the sharpest blows. Among them was the airliner industry, which in turn spelled disaster for Hertz Global (NYSE:HTZ). With travel — especially business-related trips — grinding to a halt, there was just no room for Hertz stock to go but down.
Several weeks of treading water during an unprecedented downpour led to the inevitable. In the second half of May, Hertz filed for bankruptcy protection. Due to the pandemic, its fleet of nearly 700,000 rental vehicles were suddenly and viciously idled. In one fell swoop, HTZ dropped into literal penny stock territory.
But then, something weird happened. Much to the amazement of onlookers and ambulance chasers, Hertz stock skyrocketed a day after it plunged on the bankruptcy announcement. Shares resumed their tumbling until early June, when HTZ stock again jumped higher.
This time, though, the upside was meteoric. For a brief moment, Hertz stock traded hands above $6, roughly where it was in the first half of April. Just what the heck was going on?
Enter the Millenials
Of course, the easy answer was Robinhood, as InvestorPlace market analyst Thomas Yeung explained. One of the curious phenomena of the new normal is the influx of new investors. Often young and inexperienced, they bought into the pump-and-dump frenzy of Hertz stock.
Though illogical, the power of the masses is real. As Yeung noted, mistaken identity caused people who presumably wanted to buy shares of Zoom Video Communications (NASDAQ:ZM) to instead buy Zoom Technologies (OTCMKTS:ZOOM).
When the Securities and Exchange Commission froze trading, and the subsequent change of the latter company’s ticker to ZTNO, the newly minted stock collapsed.
Could There Be a Legitimate Bull Case for Hertz Stock?
If nothing else, Robinhood’s impact during the coronavirus is a compelling narrative about mass human psychology. It’s also a cautionary tale of youthful exuberance. At the same time, I wouldn’t solely “blame” the rise of post-bankruptcy Hertz stock on Robinhood traders.
After all, we’ve seen “cheap” stocks jump for no reason whatsoever. Thus, the temptation of a low stock price is not exclusive to this pandemic.
That being the case, could there be a legitimate, rational reason to buy HTZ stock? Believe it or not, gambling on Hertz isn’t completely crazy. Don’t get me wrong — it may be 99% crazy. But the possibility of a turnaround is perhaps what’s keeping HTZ from plummeting back to its late May doldrums.
Counterintuitively, as the months go by, the bullish thesis behind Hertz stock gets at least incrementally better. First, demand for popular new cars has outstripped inventory due to the pandemic’s disruption on global supply chains. It’s getting to a point where used-car dealers are desperate to buy your car because supply is so low.
Although we’re talking about rental cars, this bodes well for Hertz’s coming auto sales, which are part of the bankruptcy deal.
This segues into my second point — the coronavirus may be making rental cars great again. Initially, of course, the outbreak was awful for the industry. But now, people are rethinking public transportation and ride sharing, the latter which has cut into Hertz’s revenues.
In fact, a Wall Street Journal article reported that formerly mass-transit friendly New Yorkers are now buying their first car. The health risks are not worth the convenience of public transport. On the same token, we could see a similar dynamic play out with ride sharing, which would indirectly bolster Hertz stock.
Race Against Time
Now, whether Robinhood traders recognize the above fundamentals is a different story. Perhaps they’re still playing the cheap pricing game. Either way, I wouldn’t recommend HTZ, unless you’re playing with “dumb” money that you can afford to lose.
As any financial advisor will tell you, it’s usually not a winning proposition to bet on bankrupt companies. That applies even to iconic brands like Hertz.
In addition, the speculative case for Hertz stock is a race against time. Certainly, the fears and behavioral shifts of the new normal could benefit HTZ. But if travel demand doesn’t pick up substantially and soon, this narrative could fall apart.
To that point, air travel statistics for the weekend of July 31 were very encouraging. However, we’re still down to only about 30% of year-ago levels. That’s just not going to cut it.
Therefore, without a confident and credible catalyst, I’m going to sit out HTZ. You’re more than welcome to gamble on it. But even among speculative bets, better alternatives exist.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.