Vehicle rental firm Hertz Global Holdings Inc (NYSE:HTZ) recently filed for bankruptcy in light of the damage caused to the transport industry by the coronavirus pandemic. However, the stock has rallied strongly and gone up fivefold since June 4, when it was trading at $0.80 a share.
It goes without saying that the rally in the Hertz stock has been come as a surprise and completely baffled most investors. It is highly likely that the stock might end up going to zero, and hence, it is perhaps important for potential investors to take a closer look at Hertz.
It seems that many traders are behaving like gamblers and simply pumping the stock for no good reason. While it may be true that Hertz might come up with a last-minute deal and stay in business, it seems unlikely. The company has debts to the tune of $19 billion, and out of that, $15 billion is linked to its fleet of vehicles.
Lenders who hold secured debt are going to be the first to start negotiations, and then the holders of unsecured debt are going to get their chance. Assuming the company can take care of both sets of lenders, the residual value is going to be distributed among the company’s shareholders. It seems unlikely that shareholders are going to get anything out of it.
Even if the company does manage to restructure, it is likely going to float fresh shares, and the current shareholders are going to end up with nothing. It should be noted that Carl Icahn, who is one of the world’s most highly regarded investors, bit the bullet and sold his 40% stake in the company.
In other words, he recognized that the shares were probably going to go to zero and hence, decided to cut his losses. Many traders and retail investors are probably buying the stock in the hopes of a miraculous turn of events.