Today, the value of Hertz's stock experienced a significant drop, followed by a recovery.
Hertz Corporation (HTZ 4.59%) experienced a significant drop in its share price on Tuesday, plunging as much as 11.9%, following the disclosure of its underwhelming third-quarter financial results before market hours. However, a surprising turnaround occurred throughout the trading session, leading to a growth of 9.2% by 3:20 p.m. ET.
Falling Short of Expectations
Investors' initial reaction to the report was unfavorable, and the reasons were clear.
Revenue registered a decrease of 5% to reach $2.58 billion, falling short of the projected $2.7 billion. The company also incurred a $1 billion charge during the quarter due to a decline in the resale value of its fleet, which was a result of its overzealous investment in electric vehicles (EVs). The resale value of EVs has been declining due to inadequate resale demand, as well as the company's previous purchases of gas-powered vehicles during a time of skyrocketing prices due to supply-chain-related bottlenecks. EVs have posed challenges for Hertz for several quarters now, due to unexpected repair costs and lower-than-anticipated demand from renters.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) dropped from a profit of $359 million in the previous quarter to a loss of $157 million for Q3, primarily due to increased vehicle depreciation.
On the bottom line, Hertz reported a loss of $0.68 per share during the quarter, marking a decline from the profit of $0.70 per share in Q3 2023 and falling below the forecasted loss of $0.50 per share.
CEO Gil West hinted at the implementation of the company's "back-to-basics strategy," while acknowledging that further work was necessary.
The Comeback
Investors appeared to be speculating that Hertz had weathered the most severe phase of its transformation, leading them to buy into the stock, which is trading at historically low prices with an affordable price-to-sales ratio of roughly 0.1. If the company can return to profitability, the stock is expected to exhibit significant growth.
Hertz announced plans to sell 30,000 EVs by year-end to optimize its vehicle strategy, and expects to complete its broader fleet update by the end of 2025.
The car rental industry is largely dependent on business activity and travel, and it appears investors are anticipating an economic upswing that would serve as a boost for Hertz.
Though Hertz is not out of the woods yet, the potential for stock growth is evident, especially if business and consumer spending pick up.
In light of the financial difficulties, some investors saw an opportunity to invest in Hertz, believing that the company's financial situation might improve due to its low price-to-sales ratio and potential for return to profitability. Moreover, the expectation of an economic upswing and increased business activity in the car rental industry could further enhance Hertz's financial situation, potentially leading to significant growth in the stock price.
