Wanna Buy Stock in a Bankrupt Company? Hertz Can Take You for a Ride!

Normally, when companies file for bankruptcy people try to get as far away as possible. Who wants to own part of a firm that publicly announced it can’t pay its bills? But recent events have turned that notion on its head.

The economic shutdown due to the pandemic all but cut off cash flow for many firms, leaving them insolvent. Some, like Pier 1, Neiman Marcus, and Hertz, have filed for bankruptcy to put their creditors at bay. But investors think a few of these companies could survive and even thrive if they can get the cash flowing again. And what’s more, the investors appear to believe that a company like Hertz could pay off all of its creditors and still have money left over for shareholders.

Or at least, that’s the most generous reason as to why the stock of the bankrupt company shot up from less than 50 cents to more than $5, and now trades between $2 and $3. Based on that, Hertz asked the bankruptcy judge for permission to sell $1 billion worth of shares in the public market, and the judge agreed. Apparently the judge thinks that if fools, er, investors, want to be parted from their money by purchasing stock in a bankrupt firm, then who’s to tell them no?

So if you think you have special insight beyond industry experts who think the company will not cover its bills, then take a gamble on Hertz. Or you might try something a little less risky, like starting a bonfire with your dollars… or buying a boat, as that always seems to be a money loser.

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