Car Rental Stocks Soar After Huge Profit Drop

The client gets on the shuttle bus Avis Budget Group Inc. at Denver International Airport (DEN) in Denver, Colorado, USA, Wednesday, October 28, 2015.

Luke Charrett | Bloomberg | Getty Images

Car rental Avis Budget rallied sharply on Tuesday after the company reported stronger-than-expected third-quarter results that sparked huge trading volume.

The company reported earnings per share of $ 10.74 per share for the third quarter, more than $ 4 above the Refinitiv consensus. Revenue also exceeded expectations. Avis Budget’s board also authorized a $ 1 billion additional share buyback.

Shares closed up 108.3% on Tuesday to hit 185.7%. On Tuesday morning, trading in the stock was halted several times, and at one point, it rallied more than 200% in a day.

Vague executives’ comments on the conference call about increased purchases of electric vehicles for its fleet seemed to add weight to the rally, as CEO Joseph Ferraro said the company would play a “big role” in the growth of electric vehicles in the US. , according to the transcript of the revenue phone call from FactSet.

The large number of bets against stocks likely influenced the size and speed of the day.

Ahead of the income statement, 20.5% of Avis Budget’s shares were sold at short notice, according to FactSet, which is an abnormally high number. When a stock rallies, short sellers are forced to close their positions by buying the stock, which puts more pressure on the stock price. This is called “short squeeze”.

Some short squeeze has been sped up this year due to retail traders using social media sites like WallStreetBets Reddit. Strong interest from small investors helped boost stocks in companies like GameStop and AMC Entertainment earlier this year.

Brokerage firm TD Ameritrade imposed trading restrictions on stocks on Tuesday, including restricting certain option strategies and blocking short sales.

Since the start of the pandemic, the car rental industry in the United States has been in turmoil. Travel demand plummeted in 2020, leading Avis rival Hertz to file for bankruptcy protection, and production delays for automakers led to a shortage of affordable vehicles in 2021 as travelers hit the road.

Hertz stock was also the subject of a buzz earlier this year. Since then, the company has emerged from bankruptcy.

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