Hertz Global Holdings (NYSE:HTZ) had a big day on Monday as the shares of the bankrupt company posted double-digit gains. For Hertz stock right now, “big day” translates into a gain of 17 cents, so it needs to be taken with many grains of salt.
That wasn’t always the case. After trading as high as $45 a share just five years ago, Hertz has been in steady decline. The novel coronavirus pandemic made the situation infinitely worse. Now at $1.59 — a fraction of its value just five years ago — HTZ stock is no bargain, just a very risky roll of the dice.
A turnaround seems unlikely at this point, although stranger things have happened. However, Hertz is a big gamble. Not only do tourism and business travel need to resume (good luck until the pandemic is in check), but Hertz has to win over its creditors and convince customers to return. Those are all tall orders.
Battered by Ride-Sharing
The problems that ailed Hertz over the past decade have been described by a former executive as a “slow moving train wreck.”
In addition to the problems of its own making, Hertz was dealing with the rise of ride-sharing companies. According to a Debtwire report, from Q4 2014 to Q4 2016, Uber’s (NYSE:UBER) share of corporate spending on ground transportation rose from 22% to 52%. During the same two-year period, the percentage spent by companies on rental cars dropped from 48% to 33%. Tourist travel saw a similar trend.
Taxis took the brunt of Uber’s increased popularity, but it has been nothing but bad news for car rental companies as well. That’s added to Hertz’s misery.
Eclipsed by Competitors
In recent years, Hertz was losing customers because its fleet of rental vehicles was aging. In 2017 — already $13.5 billion in debt — the company had to replace that fleet, but it was cash-strapped. To save money, Hertz made the decision to focus on buying sedans, while SUVs and pickup trucks were the vehicles that customers really wanted.
Competitors Avis Budget Group (NASDAQ:CAR) and privately held Enterprise chose the more expensive option. They stocked up on SUVs and pickups. That led to Hertz customers jumping ship to those rivals. Avis has also had a rough year with the pandemic and its decimation of the travel industry. However, Avis stock has been in recovery mode, and is now down just 2.3% on the year.
That’s not great, but it reflects a much stronger position than Hertz is in.
Bottom Line on Hertz Stock
As InvestorPlace contributor Laura Hoy pointed out, Hertz itself disclosed a list of 18 potential risks for investors back in June as part of a planned secondary stock offering. Among the risks were the possibility of “extreme” price volatility, Chapter 11 bankruptcy reorganization that could result in the stock becoming worthless, and constricted trading liquidity as the New York Stock Exchange’s was looking to de-list HTZ stock.
That secondary stock offering fell through. And since the company’s warning, Hertz stock has lost about 16.5% of its value. Now trading at $1.59 it’s no longer a penny stock (as it was at one point in May). However, shares have lost 92% of their value since closing at a 2020 high of $20.29 in February. Don’t forget, even that 2020 high point had HTZ down nearly 71% from the levels it was trading at just five years ago.
In other words, Hertz is a company that has been in trouble for years. Its stock has been in decline for years. The coronavirus pandemic pushed it over the edge into bankruptcy, but only accelerated a process that already seemed inevitable. At this point Hertz stock is cheap, but that’s the best that can be said for it. Few investment analysts are interested in covering HTZ at this point, and none are recommending anyone buy the stock.
An investment in Hertz has little upside. Even if the shares crawl back from worthless, it could take years before the car rental business returns to anything resembling normalcy. At that point, Hertz would be back to facing off against car rental rivals that are in a much stronger position, while fending off Uber and Lyft.
HTZ just doesn’t seem to be worth the risk at this point.
Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015. As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
