Hertz Global: A Contrarian Value Play Amid Russell Inclusion and Mixed Metrics

Hertz Global Holdings (HTZ) has been thrust into the spotlight following its addition to the Russell 2000 Growth Index, effective June 30, 2025. This inclusion, driven by its improving operational metrics and a compelling valuation, marks a pivotal moment for the company. Yet, beneath the surface lies a complex picture: while Hertz's Price-to-Sales (P/S) ratio shines as a contrarian signal, it fails several key criteria from Kenneth Fisher's renowned financial screening model. This article explores whether HTZ's inclusion in the Russell index and its valuation merits a contrarian bet—or if its unresolved financial weaknesses outweigh the positives.

The Russell 2000 Inclusion: A Catalyst for Liquidity and Sentiment

Hertz's addition to the Russell 2000 Growth Index, effective June 30, 2025, is a significant milestone. The Russell reconstitution, which saw over $220 billion in stock trades in 2024, typically sparks buying pressure as passive funds rebalance their portfolios. For HTZ, this could mean a near-term boost as institutional investors are forced to purchase the stock to track the index.

The inclusion reflects Hertz's progress under its “Back-to-Basics Roadmap,” including a 45% year-over-year reduction in vehicle depreciation (DPU) in Q1 2025 and record retail sales driven by rising used car prices. These improvements have strengthened its balance sheet, with $1.2 billion in liquidity and extended debt maturities to 2028. While these moves signal operational resilience, the stock's valuation remains its most compelling feature.

The Contrarian Case: A Dirt-Cheap P/S Ratio

Hertz's P/S ratio—a metric emphasized by Fisher's model—stands out. As of April 2025, HTZ's P/S was just 0.12, far below Fisher's “good value” thresholds even for cyclical stocks (which he defines as ≤0.8). For context, Fisher's criteria consider P/S ratios over 3 as overvalued, but HTZ's ratio is less than a third of that threshold. This suggests the market is pricing in significant risk—perhaps overestimating the company's ability to stabilize its margins or manage cyclical headwinds.

However, HTZ's low P/S isn't without context. The company has struggled with negative EBITDA and weak free cash flow, failing Fisher's other key tests: debt/equity ratio, three-year profit margins, and long-term EPS growth. These negatives highlight execution risks, such as whether Hertz can achieve its DPU target below $300 by mid-2025 or maintain used car price strength.

Fisher's Model: A Mixed Scorecard

Kenneth Fisher's strategy prioritizes low P/S and P/Research ratios, with a composite score formula of (PSR² × PRR). HTZ's P/S passes, but its P/Research ratio—though not disclosed—likely fails due to minimal R&D spending in a capital-light rental model. Meanwhile, its debt-to-equity ratio and lack of consistent EPS growth relegate its overall Fisher score to just 40%, below the threshold for “Super Stocks.”

Yet, Fisher's model isn't the only lens. The Russell inclusion underscores that broader market participants see value in HTZ's turnaround narrative. The stock's recent price action—up 22% year-to-date as of June 2025—suggests investor optimism, even if fundamentals remain uneven.

Institutional Sentiment: A Shifting Tide?

Hertz's inclusion in the Russell 2000 Growth Index reflects a broader institutional shift. The index addition typically attracts passive inflows, but active investors are also taking notice. According to recent filings, funds like Dimensional Fund Advisors and Fidelity have increased stakes in HTZ, likely drawn by its valuation and operational progress.

However, skepticism persists. Short interest remains elevated at 12% of float, and bears argue that Hertz's reliance on used car sales—a volatile market—is a risk. Yet, the company's Q1 success in optimizing fleet turnover and extending credit facilities suggests it's navigating these risks better than anticipated.

The Investment Thesis: A High-Reward, High-Risk Contrarian Play

HTZ presents a classic contrarian opportunity: a dirt-cheap valuation in a stock that's institutionally underfollowed and misunderstood. The Russell inclusion could catalyze a re-rating, particularly if Q2 results confirm stabilization in DPU and EBITDA progress. Key catalysts include:
- Q3 2025 EBITDA Turnaround: Management aims for positive Adjusted Corporate EBITDA by Q3, a milestone that—if achieved—could erase doubts about its financial viability.
- Used Car Market Trends: Rising prices driven by tariffs and supply constraints could continue boosting retail sales.
- Debt Maturity Extension: The 2028 maturity of its credit facility reduces near-term liquidity risks.

Risks: A recession could depress rental demand and used car values, while execution failures on DPU targets or margin improvements would undermine confidence.

Final Take: Buy the Dip, but Set a Watch

Hertz's P/S ratio offers a rare margin of safety in a market where many growth stocks trade at premiums. While it fails Fisher's broader criteria, the Russell inclusion and improving operational metrics suggest a bottoming-out process. Investors with a 3–5 year horizon—Fisher's recommended hold period—could profit if Hertz meets its EBITDA goals and institutional buying persists.

Action Items:
1. Buy on dips below $8.50, using the $8.24 April low as support.
2. Set a trailing stop at 20% below peaks to exit if the used car market collapses.
3. Monitor Q2 results for DPU progress and EBITDA guidance.

Hertz's valuation and Russell inclusion make it a compelling contrarian play, but success hinges on execution. For those willing to bet on its turnaround, now is the time to consider a position—but keep a close watch on the metrics that matter most.