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Hertz Shares “Worthless” – According To Its Own Filings

Here on Stock Market Daily we’ve been following the Hertz bankruptcy saga over the last few weeks.

And more news just dropped about Hertz, so I wanted to update this story for you.

Before I do that though, I need to do a quick recap of our previous reporting on the company in case you haven’t seen it.

On June 2nd 2020 I first told you about the Hertz bankruptcy in our article Hertz Bankruptcy and The Potential Winners and Losers.

In this article I detailed the following things to you…

  • Its massive debt compared to little cash.
  • How the coronavirus crushed Hertz and led the company to almost zero revenue according to its former CEO.
  • What led it to file for bankruptcy – hint: the two things above were its main contributors.
  • What they company did to avoid bankruptcy.
  • How this was going to affect other industries.
  • And more…

If you want to read the full article you can do so by clicking the link above.

But what’s important for today’s update is the following I wrote in the conclusion of the article…

Emphasis below is mine today.

If you own stock in any major companies in this arena and you’re not planning to hold for the long term, you should sell.

This goes for car rental companies, large automakers who have a lot of debt, and auto part supply companies.

Stay away from everything in this arena for the time being… I don’t think it will crash and see mass bankruptcies with companies closing for good.

But there’s far too much uncertainty and risk for me to get involved in any of these companies right now

In the short term this looked silly because Hertz stock rose significantly after this.

I updated this Hertz report to you on June 10th in our article – Hertz Stock Up 888% In 10 Days – Should You Buy In?

In this article I told you what caused the stock to jump so much… And then answered the question if I was wrong about Hertz or not.

If you want to read the full write up, you can do so by using the link above.

But here’s the conclusion I came too at the end of the article…

Again, emphasis below is mine today.

Because of its huge debt, there’s an almost 0% chance that “old” shareholders of Hertz stock – those who own now – will get paid anything after the company comes out of bankruptcy.

The people buying Hertz shares now are about to get hammered for their speculation.

And if this still doesn’t convince you, follow the “smart” money.

Since the company filed for bankruptcy, company insiders and executives sold a combined 22,303 shares as of this writing.

And billionaire activist investor Carl Icahn sold his entire 39% stake in Hertz shares at 72 cents per share… Or for a total loss of just under $1.9 billion.

These people know Hertz is unlikely to pay anything to current shareholders after it emerges from bankruptcy or they wouldn’t sell.

The market does crazy stuff in the short term… And this includes individual stocks.

But these crazy moves in performance in the short term don’t make you right or wrong.  Your analysis does.  And so, does performance over the long term.

And the analysis of Hertz now and going forward says to stay away…  Even though its shares rose 888% in 10 trading days.

Because its longer-term prospects for current shareholders are bleak.

I was happy of my decision to stay away from Hertz stock even though it went up 888% in 10 days because I focus on investing for the long term.

Not gambling like this.

Because when you invest for the long term you have a much higher probability of success than you do when you invest for the short term.

And it turns out that bleak wasn’t a strong enough word to end my previous article with.

How about worthless?  That may have been a better word to use.

That’s not my wording though… That’s Hertz own wording from a financial report it filed in bankruptcy court on June 12th 2020.  

Here’s the full text – again from its own filing.

Emphasis below is mine.

Moreover, the stock issuance would carry no repayment obligations, and the Debtors would not pay any interest or fees to those who provide the funding by buying shares at the market.

Hertz would include disclosure in any prospectus used to offer common stock highlighting that an investment in Hertz’s common stock entails significant risks, including the risk that the common stock could ultimately be worthless.

Let me give you a tip when you’re reading financial filings.

If you see the word could in a financial report… Its only there to help prevent the company from being sued.

And in this case Hertz could be lying or untruthful here.

See how that works?

Because Hertz must know based on not only their recent and past poor performance, but also due to the coronavirus and limited travel still ongoing, that there’s an almost 100% certainty current shareholdings are going to be worthless soon.

I outlined why in the Hertz Stock up 888% Article linked above.

Anyone who buys these newly issued shares are likely to lose all their money shortly afterward.

This is disgusting.

Hertz is issuing up to $1 billion in shares to keep the company alive… Even when they know the value of these shares are most likely going to $0 when the company exits bankruptcy.

Let’s go through a quick example of why.

Person A wants to buy these new shares because it thinks the shares are cheap.

When Person A buys the shares, that money goes to Hertz.  In exchange Person A get ownership in stock of the company.

But, in a matter of weeks or months when Hertz exits bankruptcy its near 100% certain that these “old” shares will be worthless.  And almost a 100% chance Person A will have wasted all their money.

Stay away from Hertz stock and this new share offering.  Because you’ll be setting your money on fire if you buy in.

Figure 1 – Via JP Valery on Unsplash

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