Key insights
- Avis Budget (CAR) surged due to a short squeeze, fueled by high short interest and concentrated ownership. Barclays downgraded the stock, citing technical factors despite favorable car rental market dynamics. The surge is likely unsustainable and driven by market mechanics rather than fundamental value, posing a bearish risk for those chasing the rally.
Investing.com -- Avis Budget Group Inc (NASDAQ: CAR) shares rose as much as 19% in premarket trading on Tuesday, extending gains for a fourth consecutive session.
The car rental company’s stock surge comes amid a significant short squeeze, with short interest currently at 62% of its free float, according to S3 Partners data. Nasdaq data shows short interest of 54% with days to cover of 7.3.
Through Monday’s close, Avis Budget has rallied more than 500% in 30 days. As of the last close, the stock has risen 374% this year.
On Monday, Barclays downgraded the stock to underweight from equal-weight following the near-vertical rally. Analyst Dan Levy attributed the move to "a sharp supply/demand mismatch in its stock, with two holders accounting for ~71% of outright ownership of the company, and over 100% of economic interest given outstanding swaps on CAR stock."
Levy noted uncertainty about how long the rally will last and whether the stock can go higher, but added that "for all the technical dynamics, car rental dynamics are favorable, with improved trends on both price and depreciation."
The sharp rise in Avis Budget shares reflects the concentrated ownership structure and high short interest creating volatile trading conditions in the stock.