Shares of Avis Budget Group dropped up to 3.5% to $99.20 on Monday as rental car headwinds piled up, closing the book on a run that had, for a moment, pushed the stock north of $700. That arc also sparked a dispute between Avis and major holder Pentwater Capital Management.
Tigress Financial Partners' Ivan Feinseth summed it up: "In the end, stocks go up on good fundamentals and go down on bad fundamentals," adding, "There is not a good fundamental story here."
The fireworks kicked off in March when Pentwater said it had added to an already large position, lining up with a roughly 600% jump over a bit more than four weeks, helped by a friendlier car rental backdrop. With more than half of Avis's already thin tradable float sold short at the time, bearish traders rushed to buy shares to cover.
Weeks later, Pentwater disclosed it had sold 4.3 million shares, and the rally quickly unwound, wiping out 70% of the gains within just two days. Avis pinned the turbulence on the hedge fund, and Pentwater is set to pay Avis $650 million to resolve a short-swing profits lawsuit.
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Macro pressure has not helped. Inflation and higher rates are crimping consumer spending, fuel costs are still high, inbound international travel is soft, and recent earnings have disappointed. Bloomberg Intelligence's Jody Lurie notes that airport turmoil earlier this year initially lifted road travel and rental car stocks, but summer demand came up short.
Those pressures left Avis stock entering October after its worst quarterly performance in more than two years. In June, Rival Hertz recorded the biggest single-day drop in its history after announcing an atypical convertible debt offering that also made shares available to short sellers. According to S3 Partners, 81% of Hertz's public float is sold short, and short interest in Avis stands at 29% of its float, far under the levels seen in March.
First New York's Vikram Rai, who does not currently hold Avis, traded the squeeze and described it as one of his most profitable moves this year. His valuation take: Avis "is one of the better rental car companies, but does it deserve to have a stock price at $500? Absolutely not."
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