When rental car giant Hertz Global (NYSE:HTZ) suffered a humiliating bankruptcy earlier this year, that should have been the only signal necessary for rational investors. While I could get into myriad reasons why, the bottom line here is that few companies escape such ignominy and rise to greener pastures. It happens, sure, but very rarely. And with that kind of risk-to-reward profile, you’ll do well to stay far away from Hertz stock.
Of course, not everyone took my recommendation. Not even a month after the Wall Street Journal reported the bankruptcy news, Hertz stock basically found itself doubling in market value. This was remarkable given not only the bankruptcy itself but the context of it. Due to the novel coronavirus pandemic, the underlying company’s business model was busted for the foreseeable future.
Even more startling, Hertz stock wasn’t exactly a sterling opportunity before the crisis. Back in the old normal, many travelers simply used ride-sharing platforms to get to where they needed to go. Frankly, with technology these days, it’s much easier for locals to drive you to specific locations rather than you deal with an unknown environment.
Admittedly, the ride-sharing industry is suffering its own setbacks. But the problem for Hertz stock is that negative impacts to other competing platforms doesn’t translate to revenue-stealing opportunities. Rather, if ride sharing is going down, that means the available sales pool for car rentals is likewise receding.
Adding to the woes, while the economy has steadily improved, the narrative for HTZ has not. Shares continue to decline as the travel industry, while enjoying some encouraging tailwinds, is not seeing enough demand to support all players.
The Charts Tell You All You Need to Know About Hertz Stock
Several InvestorPlace analysts are negative on Hertz stock to the point that it’s possible we could see a total meltdown. Aside from its fleet of rental cars, the once powerhouse brand has nothing to offer consumers in the new normal.
Sadly, even selling the vehicles is problematic. First, the economy is in recovery mode but we’re still not out of the woods. Second, it’s unlikely that prospective buyers will want to buy rental cars due to possible premature wear and tear. Plus, the resale value of rental cars could be much lower than a non-rental car’s value.
But these are really minor challenges compared to what really ails Hertz stock: the lack of meaningful conversions of air passenger volume.
If you stack the year-to-date performance since the beginning of March for HTZ against passenger volume stats across U.S. airports, you’ll notice that both metrics experienced flat growth from late June to late August. But from late August/early September onward, the two have split off into opposite directions.
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Source: Chart by Matt McCall Research Team
On one hand, you have air passengers, which have slowly but surely increased as people gradually get over their coronavirus fears. But on the other hand, HTZ stock continues to decline. Between March 2 and Oct. 7, Hertz shares have lost over 91% of their market value.
Obviously, this isn’t a trend that you want to see if you’re heavily vested in the rental car company. Unfortunately, things are probably going to worsen before there’s a chance of improvement. If passengers are flying more, it means Hertz has on paper greater conversion opportunities.
Yet it’s not taking any advantage of the increased passenger flow. Therefore, most investors are heading for the exits as the writing’s on the wall.
Transportation Data Is Not Encouraging
According to information provided by the Bureau of Transportation Statistics, more Americans are staying at home compared to last year. That’s hardly breaking news. And when they do venture out, these trips are occurring at fewer frequencies across various mileage spectrums.
At the same time, e-commerce as a percentage of total retail sales shot up to 16.1% in the second quarter of 2020. In the year-ago quarter, this metric was 10.8%. We’ve never seen such acceleration of online purchases since the advent of e-commerce.
In other words, consumers are finding contactless alternatives wherever possible. Clearly, there’s no replacing air flights, which is why shrewd investors could advantage some airliners during this deflated period. However, that demand is simply not trickling down to car rentals. And that leaves people with no alternative other than to avoid Hertz stock.
On the date of publication, Matthew McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.