We have witnessed a rallying Hertz stock earlier as well. Investors were certain of positive outcomes as the stock was on an upswing.
However, the memories of the prior rallies had faded instantly. Hertz announced their bankruptcy in the month of May. Within June, Hertz stock climbed $5 and rapidly lost all profits later.
The past records prior to the COVID-19 pandemic and occurrence of bankruptcy reveal similar movements of the company’s stock. Enthusiastic investors of Hertz had regretted investing during a sudden surge in stock in February. Hertz stock had reached its highest in two years of $20 and soon saw its bankruptcy. The company stock had even seen a $45 rate before dividing in two.
The present $2 stock rate is undeniably a result of the ongoing pandemic. However, there are other important factors contributing to the Hertz stock rating. They are knee-deep in debts which is worth more than the entire asset owned by the company.
These reasons are effective to believe another disappointing rally by the company stock.
What Makes Hertz Stock Viable?
Equity owners might be able to add little value to the company. But the stock of a bankrupt company is completely worthless and doomed.
It is undeniable that the real worth is attached to the equity as evident in the company’s recent filing.
Carl Icahn is one of the most renowned investors ever. He has also been the largest shareholder of Hertz stock till the month of May. But he lost approximately $1.6 billion after selling his total stock at a rate lesser than $1.
Most of the investors invest in a “Robinhood effect” and hope to receive higher returns at some future point of time.
The waiting strategy may work at times but not at the moment of bankruptcy. Hertz has no intention of liquidating their assets to pay off the debts.
Pandemic or no pandemic, Hertz stock is not worth investing at all, considering their disappointing past records.
If the company gets reorganized, investors have little hope of receiving a good return on equity.
A Miscalculated Move
Investors seem undeterred despite all warnings and reasons. Recently, Hertz made a public announcement of receiving a ‘debtor in possession’ funding worth $1.65 billion. Following this announcement, Hertz stock increased by 143% on October 16.
DIP finance permits the recipient company to raise money to resolve bankruptcy. The financer automatically becomes the prime beneficiary. Hence, investors are left without equity benefits.
Ultimately, even with a 59% increase, the company has little redeeming factors for its investors.
With a dynamic and accessible share market, investors can literally own spaceships, automobiles, and other profitable ventures.
Investing in Hertz stock is completely hopeless and irrational.