Today, we take a closer look at Hertz Global Holdings Inc (HTZ, Financial), which experienced a daily loss of 4.61% and a 3-month loss of 33.57%. Despite these losses, its Earnings Per Share (EPS) stands at 2.37. The question that arises is: is the stock significantly overvalued? In this article, we will conduct a valuation analysis to answer this question. We encourage you to continue reading for a more detailed breakdown.
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. The current stock price is $12.01, and with a GF Value of $3.15, we are led to believe that the stock is significantly overvalued.
Understanding GF Value
The GF Value is an estimation of the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors: historical multiples that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
Hertz Global Holdings (HTZ, Financial) stock is believed to be significantly overvalued based on the GuruFocus Value calculation. At its current price of $12.01 per share, Hertz Global Holdings has a market cap of $3.70 billion and the stock is believed to be significantly overvalued. Because Hertz Global Holdings is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Checking the financial strength of a company before buying its stock is crucial. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Hertz Global Holdings has a cash-to-debt ratio of 0.04, which is worse than 92.48% of 1051 companies in the Business Services industry. The overall financial strength of Hertz Global Holdings is 3 out of 10, which indicates that the financial strength of Hertz Global Holdings is poor.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over a long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Hertz Global Holdings has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $9 billion and Earnings Per Share (EPS) of $2.37. Its operating margin is 21.92%, which ranks better than 86.94% of 1064 companies in the Business Services industry. Overall, the profitability of Hertz Global Holdings is ranked 5 out of 10, which indicates fair profitability.
Growth is probably the most important factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Hertz Global Holdings is-12.7%, which ranks worse than 85.23% of 982 companies in the Business Services industry. The 3-year average EBITDA growth rate is -9.9%, which ranks worse than 83.43% of 851 companies in the Business Services industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Hertz Global Holdings's ROIC was 9.99, while its WACC came in at 2.44.
In conclusion, the stock of Hertz Global Holdings (HTZ, Financial) is believed to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 83.43% of 851 companies in the Business Services industry. To learn more about Hertz Global Holdings stock, you can check out its 30-Year Financials here.
To find out the high quality companies that may deliver above average returns, please check out GuruFocus High Quality Low Capex Screener.