Hertz, the iconic rental car giant, has always been a company synonymous with travel, freedom, and the open road. Yet, lurking beneath the surface of its recent financial data, a disconcerting pattern has emerged, one that hints at potential trouble ahead. While most analysts are focusing on Hertz's year-over-year revenue growth and its ambitious fleet expansion plans, a deeper dive into the numbers reveals a troubling divergence: a shrinking pool of available shares amidst an increasingly negative net working capital.

Shrinking Share Pool and Negative Net Working Capital: A Cause for Concern

The data paints a peculiar picture. In Q1 2024, Hertz reported a net working capital of -1.179 billion USD, a stark contrast to the positive 1.437 billion USD in the previous quarter (Q3 2023). This dramatic shift, largely driven by a significant increase in current liabilities coupled with a decrease in current assets, suggests that Hertz is struggling to maintain its short-term financial health. While the company's massive property, plant, and equipment (PP&E) holdings, exceeding 17 billion USD, offer a degree of security, the rapidly deteriorating net working capital raises a red flag.

Adding to the intrigue is the shrinking availability of Hertz shares. Over the past year, the company has witnessed a consistent reduction in its outstanding shares, going from 468 million in Q4 2021 to 305 million in Q1 2024. This reduction, achieved primarily through share buybacks, indicates a concerted effort by Hertz to consolidate ownership and potentially bolster its stock price. However, this strategy, while seemingly beneficial in the short term, could backfire if the company's financial performance falters.

The combination of these two factors – a shrinking share pool and a negative net working capital – presents a potential Hertz enigma. Is the company attempting to mask underlying financial weaknesses by artificially inflating its stock price through share buybacks, only to leave itself vulnerable in the long run?

A Hypothetical Scenario: The Potential Downside

Let's delve into a hypothetical scenario. If Hertz continues down this path, the reduced share float could exacerbate volatility, making the stock more susceptible to sharp price swings. Moreover, the negative net working capital could hinder the company's ability to meet its short-term obligations, potentially impacting its operations and further depressing the stock price.

The numbers are telling. Hertz's current ratio, a key measure of short-term liquidity, has been steadily declining, reaching a concerning 1.33 in Q1 2024. This indicates that the company has only 1.33 USD in current assets for every 1 USD in current liabilities, a level that could raise concerns among investors and creditors.

Hertz's Long-Term Viability: A Balancing Act

Here's the crux of the matter. Hertz's long-term viability hinges on its ability to reverse the negative net working capital trend and to demonstrate sustained profitability. The company's aggressive investment in electric vehicles (EVs) and its expansion into new markets, while promising, require substantial capital outlays. If these ventures fail to generate sufficient returns, Hertz could find itself in a precarious position.

Implications for Investors: Proceed with Caution

This Hertz enigma is not merely an academic exercise; it has real-world implications for investors. While the company's recent financial performance and ambitious growth plans may appear enticing, the underlying warning signs should not be ignored. Investors would be wise to scrutinize the company's future earnings reports, paying close attention to trends in net working capital and the availability of shares, before hitching their wagon to this rental car giant.

Outstanding Shares Trend

"Fun Fact: The Hertz Corporation, originally founded in 1918 as a small Chicago-based car rental business with a fleet of a dozen Ford Model Ts, has grown to become one of the world's largest car rental companies, operating in over 150 countries."