The stock of Hertz Global Holdings (OTCPK:HTZGQ, 30-year Financials) is estimated to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $8.74 per share and the market cap of $1.4 billion, Hertz Global Holdings stock is believed to be significantly overvalued. GF Value for Hertz Global Holdings is shown in the chart below.
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.
Link: These companies may deliever higher future returns at reduced risk.
It is always important to check the financial strength of a company before buying its stock. 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 0.13, which is worse than 84% of the companies in Business Services industry. The overall financial strength of Hertz Global Holdings is 2 out of 10, which indicates that the financial strength of Hertz Global Holdings is poor. This is the debt and cash of Hertz Global Holdings over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Hertz Global Holdings has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $4.6 billion and loss of $7.92 a share. Its operating margin of -17.28% worse than 85% of the companies in Business Services industry. Overall, GuruFocus ranks Hertz Global Holdings’s profitability as poor. This is the revenue and net income of Hertz Global Holdings over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Hertz Global Holdings is -27.7%, which ranks in the bottom 10% of the companies in Business Services industry. The 3-year average EBITDA growth is -39.8%, which ranks in the bottom 10% of the companies in Business Services industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Hertz Global Holdings’s return on invested capital is -3.77, and its cost of capital is -4.54. The historical ROIC vs WACC comparison of Hertz Global Holdings is shown below:
In short, The stock of Hertz Global Holdings (OTCPK:HTZGQ, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks in the bottom 10% of the companies in 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 deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
