Do Hertz's Fundamentals Justify The 2x Move?
Hertz Global (NASDAQ:HTZ) stock doubled in just two days following the disclosure of a $46.5 million stake by Bill Ackman's Pershing Square Holdings. This jump is interesting, especially considering that activist investors often aim to drive significant improvements in targeted companies. However, this raises a critical question: do Hertz's fundamentals support such a large move, and is HTZ stock a buy now? We believe it is not.
Trefis
Despite its seemingly low valuation, we find HTZ stock risky and unattractive at its current price of around $8. Our conclusion is based on an analysis comparing the stock's current valuation with the company's operating performance over recent years and its current and historical financial condition. This evaluation, across key parameters of Growth, Profitability, Financial Stability, and Downturn Resilience, reveals very weak operating performance and financial health for Hertz Global.That said, if you seek upside with lower volatility than individual stocks, the Trefis High-Quality portfolio presents an alternative - having outperformed the S&P 500 and generated returns exceeding 91% since its inception.
Going by what you pay per dollar of sales or profit, HTZ stock looks cheap compared to the broader market.
Hertz Global's Revenues have declined marginally over recent years.
Hertz Global's profit margins are much worse than most companies in the Trefis coverage universe.
Hertz Global's balance sheet looks very weak.
HTZ stock has fared much worse than the benchmark S&P 500 index during the recent 2022 economic downturn. While investors have their fingers crossed for a soft landing by the U.S. economy, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.
In summary, Hertz Global's performance across the parameters detailed above are as follows:
Looking ahead, Hertz faces significant challenges that reinforce our view that the stock is unattractive, despite its low valuation. The company is expected to achieve only low-single-digit average sales growth over the next three years and is projected to remain in a loss position this year. Analyst sentiment is also notably bearish, with an average price estimate of just $3 per share – a significant discount of over 60% from the current $8 price. These factors, combined with the company's very weak performance across key fundamental parameters, solidify our conclusion that HTZ is not a good stock to buy now.
While you would do well to avoid HTZ stock for now, you could explore the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.
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