Why Hertz Stock Is Plunging After Insane 896% Run Higher
Shares of Hertz Global Holdings (NYSE: HTZ), a well-known vehicle rental company that recently filed for bankruptcy protection, is tumbling after the stock had oddly traded 896% higher from its May 26 low point through June 8. Here's what investors need to know.
It can't be explained enough times, because many investors still don't fully understand exactly what's happening with Hertz during bankruptcy: Hertz current common shares are almost certainly headed to zero. Common shareholders are among the last to receive any value from a company that files for bankruptcy, as the company has obligations to attempt to satisfy just about every other entity first: creditors with secured debt, creditors with unsecured debt, even the lawyers involved with the bankruptcy process. Hertz has a $19 billion mountain of debt that the company will need to satisfy before any liquidated, or other, value can reach common shareholders. The fact that Carl Icahn, who amassed nearly 40% of Hertz common shares, sold his full stake and threw in the towel after Hertz filed for bankruptcy should tell you all you need to know: There is no value in owning Hertz in its current form. Or, if there is any value in trading Hertz stock, it's determined by a roll of the dice that has more in common with gambling than investing.
Hertz has already received a delisting notice from the New York Stock Exchange, which it is currently challenging, and Deutsche Bank analyst Chris Woronka made an important point acknowledging the odd Hertz trading: "As the reopening trade continues to lift travel-centric stocks higher, we find ourselves in the camp of conceding that it absolutely could continue ... but also questioning the true depth of the buying in what increasingly feels like a capitulation-type short squeeze being exacerbated by high-frequency trading programs."
Source Fool.com
