Unveiling Hertz Global Holdings (HTZ)'s Value: Is It Really Priced Right? A Comprehensive Guide
Hertz Global Holdings Inc (NASDAQ:HTZ) has been on a roller coaster ride, with a daily loss of 7.44% and a three-month loss of 41.36%. Despite this, the company maintains an Earnings Per Share (EPS) of 2.37. But is the stock significantly overvalued? This article aims to unravel the intrinsic value of Hertz Global Holdings (NASDAQ:HTZ) and provide a comprehensive analysis of its financial health. Let's delve in.
A Glimpse into Hertz Global Holdings
Hertz Global Holdings Inc operates an automotive vehicle rental service through the Hertz, Dollar, Thrifty, and Firefly brands. The company offers cars, crossovers, and light trucks for rent; ancillary products and services; rental of industrial, construction, and material handling equipment; and fleet-leasing and fleet-management services. The company operates a network of car rental locations and licenses its brands to associates and franchisees.
With a current price of $10.82 per share, Hertz Global Holdings has a market cap of $3.40 billion. But is this in line with its intrinsic value? Let's explore the GF Value to find out.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. Essentially, the GF Value Line gives an overview of the fair value that the stock should be traded at.
According to the GF Value, Hertz Global Holdings (NASDAQ:HTZ) stock appears to be significantly overvalued. This suggests that the long-term return of its stock is likely to be much lower than its future business growth.
Assessing Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it's crucial to review the financial strength of a company before deciding to buy its stock. Hertz Global Holdings has a cash-to-debt ratio of 0.04, which is worse than 92.49% of 1039 companies in the Business Services industry. This indicates that the financial strength of Hertz Global Holdings is poor.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is usually less risky. Hertz Global Holdings has been profitable 5 over the past 10 years. The company had a revenue of $9 billion and Earnings Per Share (EPS) of $2.37 over the past twelve months. Its operating margin is 21.92%, which ranks better than 86.98% of 1052 companies in the Business Services industry. Overall, the profitability of Hertz Global Holdings is fair.
However, Hertz Global Holdings's 3-year average revenue growth rate is worse than 85.42% of 974 companies in the Business Services industry. The company's 3-year average EBITDA growth rate is -9.9%, which ranks worse than 83.79% of 845 companies in the Business Services industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Hertz Global Holdings's return on invested capital is 9.99, and its cost of capital is 2.46.
Conclusion
In conclusion, the stock of Hertz Global Holdings (NASDAQ:HTZ) appears to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 83.79% of 845 companies in the Business Services industry. To learn more about Hertz Global Holdings stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
