June 8, 2020 - Hertz Global Holdings (HTZ) gained 189% last week.
The rental car company was very popular with investors at Robinhood, where the number of accounts with a position in Hertz rose by more than 35,000 last week.
Traders who opened positions early in the week booked a nice gain, but we're not sure where the stock goes from here.
Hertz filed for Chapter 11 bankruptcy protection on May 22 after missing an already deferred payment to a group of lenders.
The rental-car business has been hit hard by the pandemic, but Hertz was struggling before the coronavirus. The company reported record revenues of $9.8 billion in 2019, while losing $58 million.
Hertz lost $356 million in the first quarter of 2020, and reported total debts of $18.75 billion.
The company has already laid of thousands of employees and plans to downsize its massive automobile fleet as well, but given that the company wasn't able to operate profitably prior to the pandemic, it is going to take a lot of improvement for the company to become profitable. Especially since airlines, to which the rental-car business is closely tied, are predicting it could be years before we see pre-crisis levels of air travel again.
Chapter 11 allows for reorganization as opposed to liquidation, but with $18.75 billion in debt against a market capitalization of $376 million as of Friday's close, any reorganization is likely going to see the company's lenders take a significant ownership stake in the company, potentially wiping out the current shareholders entirely, or, at best, significantly diluting them.
This is obviously a trade that is working in the short term, but a massive rise in the stock of heavily indebted, money-losing business doesn't seem sustainable and is likely to end up with a lot of investors getting burned when the rally runs out of steam.
