A three-fold surge in the shares of car rental company Avis Budget Group in just two weeks has punished short investors betting against the stock. But the bears are not giving up; if anything, they are doubling down.
Short interest in the company as a percentage of its free float is currently at 58%, the highest in the last 10 years, according to S3 Partners data. Bearish wagers in the stock have steadily climbed even as a more than 200% spike in Avis shares in just 10 trading sessions through Tuesday squeezed those betting on a drop. Short investors clocked in nearly $2.5 billion in mark-to-market losses over that period.
“Short sellers are actively shorting into CAR, looking for a pullback in this almost one-month rally,” said Ihor Dusaniwsky from S3 Partners. Short interest in the stock stood at 54% of free float on March 30, right before the rally took off.
Avis stock fell as much as 19% Wednesday before paring some of the losses to trade down 8.5% by 2 p.m. in New York. The stock is poised to snap its longest winning streak since 2019.
Avis peer Hertz Global Holdings Inc., whose shares jumped 56% between March 31 and April 14, slipped 11% Wednesday.
The near vertical run in Avis shares began after Pentwater Capital Management disclosed last month that it acquired a sizable stake in the company. The share price was was further helped by a boost to car-rental businesses as congestion mounted at US airports last month due to a partial government shutdown.
The company did not immediately reply to requests for comment.
Analysts haven’t bought into Avis’s recent surge. Of the eight ratings on the stock, only one is a buy, according to data compiled by Bloomberg.
“We struggle to justify the current share price using traditional metrics and a 12-month time horizon,” said Deutsche Bank analyst Chris Woronka, who downgraded Avis shares to hold from buy. “We think there remains a material risk of further upside from a short squeeze,” he said.
This isn’t Avis’s first brush with meme-stock like volatility. The stock became a retail investor darling in 2021 when the company planned to encourage EV adoption in its fleet.
This time around though, retail traders are also souring on Avis, with flows turning “aggressively negative” in April, according to Vanda Research’s Ashwin Bhakre. Daily outflows have reached roughly $10 million to $12 million, which are among the largest on record for the stock, he added.
The recent surge in the company shares is being driven by short sellers racing to cover positions and limit losses, said Matt Maley, chief market strategist at Miller Tabak + Co.
“This kind of action is not being caused by any improvement in the fundamentals, it shows that some froth is returning,” Maley said. “We could be due for a breather in the market and a significant decline in Avis as it falls back to reality.”
Written by: Jordan Fitzgerald @Bloomberg
The post “Avis’s 200% Surge Lures New Shorts Eyeing Trip ‘Back to Reality’” first appeared on Bloomberg