Stock markets are soaring. But not every stock has participated in the upswing. Two Nasdaq stocks in particular have seen their share prices fall dramatically. If you're looking for bargains, start here.
This stock hurts
Since the start of 2024, Hertz Global Holdings(NASDAQ: HTZ) stock has fallen about 60%. Its market value has fallen from a peak of about $12.5 billion to about $1 billion.
What's going on? There are three main problems: overly aggressive stock repurchases, overly aggressive electric vehicle (EV) purchases, and elevated interest rates.
First, some context. Hertz filed for bankruptcy in 2020. The company went public again in 2021 with lower debt and significant improvements in operational flexibility. Management quickly put this extra capital to work in the form of stock buybacks. Within months of going public, for example, it launched a $2 billion share-repurchase program, a program it would add to in the years that followed. Today, those share repurchases consumed more value than the current market cap of the entire company.
Then, management aggressively ramped up its EV purchases right before the market cooled, and depreciation rates for both EV and internal combustion engine (ICE) vehicles spiked. The company's average-monthly depreciation per vehicle per month in 2021 was $81. That rose to $112 in 2022. Then it rose again to $332 in 2023. Last quarter, it hit $649. The rising charge has been a big drag on earnings, with no end in sight.
To cover its losses, Hertz has been forced to take on additional debt at today's elevated interest rates. Interest rates on new Hertz debt have ranged as high as 12.625%.
Should you take a shot on Hertz stock now that it's in the bargain bin? Don't bother with this former meme stock. As Warren Buffett often advises, buying a stock is ultimately a bet on the company's management team. Hertz stock may be cheap, but unlike the next company on this list, Hertz's repeated operational mistakes buy no room for confidence in a potential investment.
Trust in management teams like this
A great counter example to Hertz's operational incompetence is Lululemon Athletica(NASDAQ: LULU). Since 2024 began, the shares have lost about 43% of their value. But don't mistake this recent loser for a dud. Lululemon stock has rarely experienced a valuation dip this large. Since 2013, the shares have risen nearly 600% in value. The Nasdaq Composite Index, for comparison, rose by just 316% over the same time frame.
Lululemon has a terrific track record of operational success. Since going public in 2007, the company has never experienced a drop in sales on a year-over-year basis. It's also never posted a quarterly loss. Last quarter, the company had its widest profit margin in years.
If Lululemon is such a terrific business, why then have the shares fallen so dramatically? As Fool contributor Royston Yang explains, "With investors closely monitoring every quarterly result and comparing it with analysts' expectations, there are times when even the shares of strong companies get sold down sharply." He points out that the company has experienced slowing sales growth in North America due to inflationary pressures and has generated negative publicity around the recent exit of its chief product officer (CPO).
Despite these pressures, Yang highlights that Lululemon is still riding a rising tide. "The athleisure market was valued at $358 billion last year, according to Grand View Research," he notes, adding that this market is expected to grow at 9.3% per year through 2030 to hit $667 billion. Now trading at just 23 times earnings, this looks like a great opportunity to buy an iconic international company with strong long-term tailwinds.
Should you invest $1,000 in Hertz Global right now?
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica. The Motley Fool has a disclosure policy.
