The stock market has recovered much of its lost ground from the initial phase of the COVID-19 crisis, but some companies haven't been as lucky. Hertz Global Holdings (OTC:HTZG.Q) saw its business activity evaporate during coronavirus-inspired shutdowns, and that forced the car-rental giant to deal with unprecedented financial pressures that led it to seek bankruptcy protection from its lenders.
Bankrupt stocks often see trading activity go away, but Hertz still has millions of shares changing hands every single day. Unfortunately, investors are likely kidding themselves if they expect Hertz to emerge without making their stock worthless. Hertz itself listed many of the reasons why investors should steer clear of its shares.
Big risk factors for Hertz stock
In June, Hertz hoped to cash in on the unusual demand for the bankrupt company's stock by doing a secondary stock offering. In the end, the U.S. Securities and Exchange Commission put a stop to the offering. That didn't stop astute investors from looking at the areas that Hertz identified as being the biggest risks that shareholders face right now. Below are all 18 of the risks that Hertz set forth in an effort to warn would-be investors of the dangers they're getting themselves into:
- The New York Stock Exchange is looking to delist Hertz stock, which could affect trading liquidity.
- Hertz's Chapter 11 bankruptcy reorganization could cause the stock to become worthless.
- Operating in bankruptcy limits Hertz's strategic flexibility.
- Working through the bankruptcy is taking Hertz's attention away from other aspects of its business, which could cause key employees to leave.
- If Hertz can't come up with a bankruptcy reorganization plan that the court and creditors will accept, it could be forced to liquidate, in which case, the common stock would be worthless.
- Changes to Hertz's capital structure after bankruptcy could hurt shareholders.
- Assumptions that Hertz makes in proposing a plan of reorganization could be wrong.
- Some claims will survive bankruptcy, and Hertz will have to repay them.
- A potentially long period in bankruptcy protection could hurt Hertz's business.
- It's uncertain how much longer Hertz will have to keep making vehicle lease payments for its fleet.
- Stock price volatility could be extreme.
- The bankruptcy court has imposed orders that limit trading activity for major shareholders owning more than a 4.5% stake.
- Hertz's ability to use tax assets has been adversely affected recently.
- Hertz's bankruptcy could hurt its overseas operations, and they may also have to seek bankruptcy protection.
- Shareholders could be significantly diluted as a result of the bankruptcy case or future stock offerings.
- Hertz might not use the proceeds from any sale of stock effectively.
- Hertz doesn't plan to pay dividends anytime soon.
- Any offering from Hertz could cause the stock price to drop.
Some of these risk factors apply specifically to the canceled offering, but most of them still apply to those who own the stock today.
Know what you're doing
I don't own Hertz stock and wouldn't suggest that you own it, either. If you choose to invest in the rental car company, though, it's important at the very least to understand fully what you're getting yourself into. These risk factors are very real and are highly likely to wipe out Hertz shareholders in short order.