Billionaire Bill Ackman is one of the most closely followed investors. The head of Pershing Square Capital Management is known for betting on beaten-down big-brand stocks like Chipotle and Nike, and he's never hesitant to share his opinion, whether it's on the markets, politics, or another issue.

So it wasn't a surprise to see Hertz Global (HTZ 44.48%) stock skyrocket after Ackman's fund disclosed a stake in the car rental business. Hertz shares jumped 126% in a two-day span as of trading on Thursday afternoon as his purchase of a nearly 20% stake in the longtime laggard breathed new life into the stock.

In a filing Wednesday, Pershing Square disclosed a purchase of 12.7 million shares in the struggling car rental stock worth $46.5 million at the time, though that value has since more than doubled. The purchase made Pershing Square Hertz's second-largest shareholder.

Image source: Getty Images.

What Ackman sees in Hertz

Ackman didn't comment on the purchase, but it fits in with the beaten-down consumer stocks that he's purchased before like Chipotle and Nike. His Pershing Square fund also took a large stake in Uber Technologies earlier this year, and that, combined with Hertz, seems to show an increased interest in the transportation sector.

The move is also notable because it comes at a time when uncertainty has soared in the stock market. Hertz has historically been sensitive to the economic cycle since it depends on business travel and tourism for rentals. Still, Ackman's purchase of $46.5 million is a relatively small stake compared to Pershing Square's assets under management of $18.3 billion.

The car rental sector has long been a challenging one for investors, and the industry now competes with ride-sharing options like Uber and Lyft. The company was also forced to declare bankruptcy during the pandemic but restructured its debt to emerge as a leaner company.

Hertz is the second-largest car rental company in the world behind Enterprise and brought in $9.05 billion last year. However, revenue declined in 2024, falling 3.4% year over year as it faced challenges related to an over-investment in electric vehicles. That misjudgment led to an asset impairment of $1 billion and a $2.9 billion generally accepted accounting principles (GAAP) net loss last year due to higher-than-normal depreciation relating to the EVs.

With that challenge now effectively in the rearview mirror, Ackman seems to be betting that Hertz can become a healthy company even as the stock was still down sharply from the EV issues. As the chart below shows, Hertz had lost nearly 90% of its value over the last three years, before the news that Ackman had taken a stake in the company.

HTZ data by YCharts

Hertz first reported the challenges with the EV segment in January 2024.

The company has also shifted to a strategy of maximizing revenue per unit (RPU) and keeping fleet capacity below demand, and its revenue-per-unit declines narrowed from 7% in the first quarter of last year to 1%, showing the business appears to be moving in the right direction.

Is Hertz a buy?

Even without the challenges around EVs, it's evident the business is weak on a few fronts. Revenue is declining, indicating waning demand or economic headwinds, even if some of that decline is related to efforts to limit capacity.

As revenue fell 7% in the fourth quarter, direct expenses rose 2%, a sign the capacity strategy has yet to pay off. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss in the fourth quarter was $357 million, showing the company was still unprofitable even after backing out its large depreciation costs.

Hertz didn't offer financial guidance for 2025 in its fourth-quarter earnings report, but even if it had, those numbers would likely be in doubt due to the economic turmoil emanating from the trade war. Forecasters expect international tourists to cut back on visits to the U.S., a move that could cost the tourism sector, including Hertz, billions of dollars.

Given the macro headwinds and internal problems at the company, it's not clear what Ackman sees in the stock aside from a beaten-down share price. Investors are better off staying on the sidelines at this point.