After analyzing rental car companies Hertz and Zipcar, “Mad Money” host Jim Cramer on Monday recommended investors consider Hertz, but avoid Zipcar “like the plague.”
“To me, Zipcar is a growth stock whose growth may have already peaked, whereas Hertz has solid growth prospects, a much more diversified revenue stream and a cheaper valuation,” Cramer said, adding that’s why ZIP has fell around 45 percent since it came public at $18 last year and is down roughly 23 percent year-to-date.
Several years ago, Zipcar created the hourly car rental concept. Today, it’s the leading player in the business with a half million members who use 9,000 self-service vehicles across the U.S. In the last five years, Zipcar’s revenues increased at a 50 percent compound annual growth rate. The concept was a great idea, Cramer said, but the only problem is that rival car rental companies Hertz and Enterprise have copied it.
“I just don’t see how tiny Zipcar with its $400 million market cap can compete against these titans, which already have huge fleets of cars with major rental locations all over America,” Cramer said. “Enterprise and Hertz have a built in advantage with this business. Zipcar merely has a hip brand, and that can only take you so far.”
To Cramer, the tough competition is enough to scare him away from Zipcar’s stock, but he has several other concerns, too. Zipcar’s growth already seems to be decelerating, for example. It is only just now expected to become profitable, he added.
In the end, Cramer would rather buy Hertz, which is selling for 8 times next year’s earnings with a 12 percent long-term growth rate, rather than Zipcar, selling for 29 times earnings with growth prospects that might not be as good as Wall Street analysts think.
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