There’s one additional hypothesis, and I say this in solidarity. Maybe we don’t fully understand how to evaluate Hertz’s underlying value.
In fact, as of today (6/10/2020), their market cap is $358.58 million, not $900 million.
Their debt/equity ratio is about 14:1, about 9x higher than the S&P500 average of 1.5:1. But Moody’s, Lamb Weston Holdings, and Lowe’s Companies Inc are on the S&P 500 and have DE ratios of 10 or 12 to 1.
Their net profit margins have been alternating between +/- 5% for years, so the current losses are nothing out of the ordinary. Maybe investors assume this is a great time to buy low.
They have intangible assets: organization and brand name recognition.
These are just some stats I threw together having zero prior knowledge about Hertz and no actual experience in picking stocks. But when I look at that picture—a global brand in a rough patch, with high but not unprecedented debt vs. equity, and very low stock prices—it’s not obvious to me that it is misvalued by the stock market.
Note that I’m not saying it is correctly valued—just that it’s not obvious to me that it’s incorrectly valued. “Nail in the coffin of the EMH” is a fun phrase to say, but as always, the bottom line is that if you’re so sure, why aren’t you shorting Hertz?
To update on this: Hertz stock is now worth $5-8 as it comes out of bankruptcy. I hope OP didn’t short it, because he would’ve lost his shorts based on his belief that EMH is false and he’s smarter than the markets.
“Nail in the coffin of the EMH” is a fun phrase to say, but as always, the bottom line is that if you’re so sure, why aren’t you shorting Hertz?
Because the market can stay irrational longer than you can stay solvent. It’s entirely possible that Hertz is incorrectly valued, but if you short Hertz now, then you had better have enough liquidity to survive the margin calls caused by irrational exuberance.
One additional point that should matter. The valuation is not merely Hertz as an enterprise but the value of Hertz’s assets to other market players. If Hertz is gone then the market equilibrium shifts for all the other rental companies. What is the value of merger (friendly or not)?
There’s one additional hypothesis, and I say this in solidarity. Maybe we don’t fully understand how to evaluate Hertz’s underlying value.
In fact, as of today (6/10/2020), their market cap is $358.58 million, not $900 million.
Their debt/equity ratio is about 14:1, about 9x higher than the S&P500 average of 1.5:1. But Moody’s, Lamb Weston Holdings, and Lowe’s Companies Inc are on the S&P 500 and have DE ratios of 10 or 12 to 1.
Their net profit margins have been alternating between +/- 5% for years, so the current losses are nothing out of the ordinary. Maybe investors assume this is a great time to buy low.
Lots of major companies have recovered from bankruptcy.
They have intangible assets: organization and brand name recognition.
These are just some stats I threw together having zero prior knowledge about Hertz and no actual experience in picking stocks. But when I look at that picture—a global brand in a rough patch, with high but not unprecedented debt vs. equity, and very low stock prices—it’s not obvious to me that it is misvalued by the stock market.
Note that I’m not saying it is correctly valued—just that it’s not obvious to me that it’s incorrectly valued. “Nail in the coffin of the EMH” is a fun phrase to say, but as always, the bottom line is that if you’re so sure, why aren’t you shorting Hertz?
To update on this: Hertz stock is now worth $5-8 as it comes out of bankruptcy. I hope OP didn’t short it, because he would’ve lost his shorts based on his belief that EMH is false and he’s smarter than the markets.
Because the market can stay irrational longer than you can stay solvent. It’s entirely possible that Hertz is incorrectly valued, but if you short Hertz now, then you had better have enough liquidity to survive the margin calls caused by irrational exuberance.
One additional point that should matter. The valuation is not merely Hertz as an enterprise but the value of Hertz’s assets to other market players. If Hertz is gone then the market equilibrium shifts for all the other rental companies. What is the value of merger (friendly or not)?
A merger where the merging company gets $20 billion in debt likely isn’t worth it.