Avis Budget Shares Reach Record High Amid Short Squeeze and Waning Bearish Sentiment

Avis Budget Shares Hit Record High Amid Short Squeeze

Shares of car-rental company Avis Budget continued their meteoric rise on Tuesday, reaching a record high as analysts pointed to a short squeeze that has dealt significant losses to investors betting against the stock.

As of Monday, a staggering 86.2% of Avis' free floated shares were shorted, according to data analytics firm Ortex, just shy of the 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. Together, they hold more than 25.2 million shares, accounting for over 71% of total outstanding shares, data compiled by LSEG showed. This concentration of ownership has contributed to the current short squeeze situation.

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According to a filing earlier this month, Pentwater significantly increased its stake in Avis, sharply shrinking the available float. This move has created a short squeeze situation, where investors betting against the company are forced to unwind their positions.

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.

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Despite the current rally, not all analysts are optimistic about Avis' prospects. 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.