What happened

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.

So what

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."

Car rental sign

Image source: Getty Images.

Now what

For those asking why Hertz is still operating if it has filed for bankruptcy protection, the answer is that Hertz is labeled as an essential business. This means that while the company negotiates with its creditors, it will use its roughly $1 billion in cash to continue operations as long as possible. But investors shouldn't conclude that its continued operations mean the possibility for a long-term rebound in Hertz stock. If anything, Hertz might restructure the company, liquidate part of its vehicle fleet to help satisfy debt, and issue new common stock to give creditors some value in a new "Hertz" operation. If that happens, current Hertz shareholders will likely be left holding worthless shares of the old company.