Hertz Global Holdings Inc (NASDAQ: HTZ) is up nearly 50% in premarket on Thursday after billionaire investor Bill Ackman announced a sizable stake in the car rental company.
Ackman had built a 4.1% stake in Hertz last year. Now, he has increased that stake to 19.8%, as per a source that spoke with CNBC on the condition of anonymity this week.
Ackman’s Pershing Square is now the second largest shareholder of HTZ, shares of which, including today’s gains, are now up more than 100% versus their year-to-date low.
Hertz financial strength doesn’t inspire confidence
Bill Ackman’s sizable stake in Hertz stock reflects his confidence in what the future holds for this car rental company. However, there’s plenty that suggests HTZ remains a high-risk investment.
For starts, the Nasdaq listed firm lost a total of $2.9 billion in 2024. So, Hertz’ financial health remains shaky, and despite Ackman’s confidence, these losses indicate deeper structural issues.
Additionally, Hertz made a big bet on EVs, particularly Teslas, but that move backfired. The firm faced significant depreciation costs and had to sell of a large portion of its electric vehicle fleet at a loss.
And it’s not like Hertz shares currently pay a dividend to make it any easier to look past the signs of weakness in its financials.
Hertz continues to be a highly volatile stock
Investors should remain cautious on Hertz stock despite Ackman’s announcement as it has a history of extreme stock price swings, dating back to its meme stock surge after bankruptcy in 2020.
While the billionaire’s investment has triggered a short-term rally in HTZ shares, it’s worth noting that the car rental company remains highly volatile and, therefore, risky to own, especially now that fears of a recession ahead have been brewing again.
Finally, the car rental industry highly competitive, with companies like Enterprise and Avis maintaining strong market positions. Hertz’s financial instability and failed EV strategy puts it an even bigger disadvantage compared to rivals.
Wall Street disagrees with Ackman on HTZ shares
Bill Ackman’s increased stake may signal optimism, but the underlying financial struggles, failed EV strategy, and competitive pressures suggest Hertz is a high-risk investment for 2025.
In fact, Wall Street analysts disagree with Ackman on Hertz stock as well. The consensus rating on HTZ shares currently sits at “underweight” with the mean target of $3.31 indicating potential downside of more than 50% from current levels.
What’s also worth mentioning is that Ackman, while a globally revered investor, has made bets in the past that didn’t quite pan out. For example, he loaded up on nearly 20 million shares of Valeant Pharmaceuticals at $171 in 2015.
But the company soon became embroiled in accounting scandals and congressional investigations over its drug pricing practices, causing its stock to plummet to just $27, leading to about a $2.0 billion loss for the founder and chief executive of Pershing Square.
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