Avis stocks double in a single day as the huge profit hit makes the hedge fund shorts work

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Car rental stock Avis Budget rose Tuesday after the company reported a stronger-than-expected third quarter that sparked massive trading volume.

The company reported earnings per share of $ 10.74 for the third quarter, beating Refinitiv’s consensus estimate by more than $ 4. Sales also exceeded expectations. Avis Budget’s board of directors also approved an additional $ 1 billion share buyback.

The stock closed on Tuesday 108.3% higher at 185.7%. Trading in the stock was suspended several times on Tuesday morning and had risen at times by more than 200% for the day.

Vague comments on the executive conference call on increasing purchases of electric cars for its fleet seemed to fuel the rally as CEO Joseph Ferraro said the company would play a “big role” in the growth of electric cars in the US, according to a transcript of the earnings call from FactSet.

A large number of bets against the stock likely contributed to the size and speed of the day’s movement.

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In the run-up to the earnings report, according to FactSet, 20.5% of the free float of Avis Budget shares was sold short, an unusually high number. When a stock rises, short sellers are forced to cover their positions by buying stocks, which creates more upward pressure on the stock price. This is known as a “short squeeze”.

Some short squeeze were sped up this year due to retailers using social media sites like Reddit’s WallStreetBets. Strong interest from smaller investors contributed to dramatic moves in stocks like GameStop and AMC Entertainment earlier this year.

Brokerage firm TD Ameritrade introduced trading restrictions on the stock Tuesday, including restricting certain option strategies and blocking short selling.

The US rental car industry has been in a state of upheaval since the beginning of the pandemic. Travel demand plummeted in 2020, causing Avis rival Hertz to file for bankruptcy, and production delays for automakers resulted in a shortage of available cars in 2021 as travelers hit the streets.

The Hertz share was also the subject of a trading frenzy at the beginning of the year. The company is now out of bankruptcy.