Hertz (HTZ) has suddenly come back to life. After years of fleet problems, heavy losses, and a collapsing share price, investors are finally seeing signs of a real turnaround. Since closing at $1.51 on August 4, the stock has surged to around $2.8, an increase of roughly 87% in just over a week.

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The move is being driven by two things at once. The car rental and mobility solutions provider's Q2 results showed real improvement in fleet economics, while extremely high short interest has added fuel to the rally. With nearly 30% of shares outstanding recently sold short, the big question now is whether the squeeze still has room to run — or whether the stock has already moved too far, too fast.

That leaves me cautiously bullish on HTZ for now, as the turnaround looks increasingly real and the squeeze may still have room to run.

Real Turnaround with a Short Squeeze

There are two things happening at Hertz right now: a real operational turnaround and a short squeeze on top of it. I'll focus more on the latter as I go through this article.

First, let's look at the turnaround. Hertz went through a massive crisis in fleet economics. The most famous example was its heavy bet on Tesla (TSLA) electric vehicles (EVs). The residual value of those cars plunged, forcing Hertz to accelerate sales and recognize massive depreciation.

In Q2 2024, Hertz's Depreciation Per Unit (DPU) reached $600 per month. Today, the target is around $300. On an annualized basis, that's roughly $7,200 versus $3,600 per vehicle. This figure is essentially the "monthly cost of owning the car" from its loss in value. For a rental company, it's one of the most important metrics in the business.

Imagine Hertz buys a car for $35,000 and expects to sell it two years later for $28,000. The car loses $7,000 in value over 24 months. That works out to roughly $292 in depreciation per month, close to Hertz's $300 DPU target.

Now imagine Hertz buys the same car for $35,000 but later finds it can only sell it for $21,000. That would translate into a DPU of roughly $583 per month. That's basically what happened to part of Hertz's fleet.

Hertz's Turnaround Is Showing Up in the Numbers

Hertz's turnaround is now starting to show clearly in the numbers. In its Q2 earnings report released a few days ago, the business showed strong signs of improvement. Basically, it means fewer cars, higher revenue per car, better utilization, and DPU back near its target.

The company reported a 10% year-over-year increase in revenue even though its average fleet was 1% smaller. Revenue per day (RPD) grew 9% year-over-year. Utilization also rose to 79%, up 80 basis points. Adjusted EBITDA came in at $81 million, compared with just $18 million a year ago.