As we head into the weekend, one stock has emerged as a surprise winner in recent trading: Hertz Global Holdings Inc. (HTZ). The rental car company’s shares have surged an astonishing 99.03% over the past week alone.
The catalyst behind this sudden move is none other than Bill Ackman’s Pershing Square Capital Management, which has taken a significant stake in Hertz Global Holdings Inc. According to reports, Pershing Square purchased 12.71 million shares of HTZ stock valued at approximately $46.5 million. This investment has sparked a short squeeze, sending the stock price soaring.
What is a Short Squeeze?
A short squeeze occurs when a heavily shorted stock experiences a sudden and significant price increase, forcing investors who have bet against the company (i.e., those who are “short” the stock) to quickly cover their positions by buying back shares. This can lead to a rapid acceleration of the stock’s price movement as more and more shorts are forced to buy in.
Short squeezes often occur when there is a significant amount of short interest in a particular stock, meaning that many investors have bet against its success. When the stock suddenly surges, these investors must scramble to cover their positions by buying back shares at the higher prices, which can drive up the price even further.
The History of Short Squeezes
One notable example of a short squeeze is GameStop (GME), which experienced an extraordinary run-up in January 2021. The stock opened the month at $4.75 per share and reached a high of $120.75, only to retrace its gains over the next few months.
In particular, GME closed out January 2021 at $81.25 per share before opening February at $79.34 and eventually reaching a low of $9.63 in March. This serves as a reminder that short squeezes often do not last forever and can be followed by significant retracement.
Please note that the historic prices above for GME are after accounting for a July 2022 share split.
What’s Next for Hertz Global Holdings Inc.?
As HTZ continues to experience this remarkable run-up, investors should exercise caution when considering whether or not to buy into the stock. While Pershing Square’s stake is certainly a positive development, it does not guarantee success, and the company’s financial performance and market trends can still be volatile.
Additionally, investors should consider HTZ’s valuation metrics, which include a relatively low price-to-earnings ratio of -0.88 and a negative net margin of 31.63%. While these numbers may seem daunting, they could indicate that the stock is undervalued or ripe for a turnaround.
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Disclaimer
Please note that this article is for informational purposes only and should not be considered as a buy or sell recommendation. Investing in stocks involves risks, including potential losses. Always do your own research before making any investment decisions.
