By Shashwat Chauhan
April 21 (Reuters) – Shares of car-rental company Avis Budget extended April’s dizzying rally to hit a record high on Tuesday, as analysts pointed to a short squeeze that has dealt steep losses to investors betting against the stock.
As of Monday, 86.2% of Avis’ free floated shares were shorted, data analytics firm Ortex showed, just short of an all-time peak of 89.3% recorded in March. High short interest makes a stock more vulnerable to a short squeeze, as investors betting against the company are forced to unwind their positions when its share price rises sharply.
Avis’ shares are heavily owned by two firms. Hedge funds SRS Investment Management and Pentwater Capital Management together hold more than 25.2 million shares, accounting for over 71% of total outstanding shares, data compiled by LSEG showed.
According to a filing earlier this month, Pentwater significantly increased its stake in Avis, sharply shrinking the available float.
“If they choose not to lend their shares and to make it difficult for people to borrow, then this really creates a short squeeze situation,” said Steve Sosnick, chief market analyst at Interactive Brokers.
“On top of it, you now have other momentum buyers who understand that there is a short squeeze going on and they’re jumping in from the long side to participate as the stock rallies.”
Short sellers have suffered losses worth around $4.09 billion so far this month, with nearly $1.01 billion on Monday alone, when Avis shares jumped more than 23%. Trading was halted multiple times on Tuesday morning, with shares last up 9% at $663.5.
A new filing on Tuesday showed Pentwater acquired another 34,700 shares, along with put and call options, at $85 each, taking its total holding to 7.08 million shares. The stake would be worth more than $4.3 billion based on Avis’ last closing price, according to Reuters calculations.
SRS’ position would be worth $8.01 billion more than what it was at the start of the month.
Pentwater Capital and SRS Investment did not immediately respond to Reuters’ requests for comment.
This is not the first time Avis has seen a “meme-like” rally, having last experienced a similar surge in 2021. The stock is currently the second-most trending ticker on retail investor forum Stocktwits.
Barclays downgraded the stock to “underweight” from “equal-weight” on Monday, saying the current stock price is not justified even with improved fundamentals. Deutsche Bank analyst Chris Woronka also downgraded the stock to “hold” from “buy” earlier this month.
Avis in February reported a decline in quarterly revenue and posted a net loss of $856 million for the December quarter.
(Reporting by Shashwat Chauhan in Bengaluru; Editing by Shilpi Majumdar)
