Snowball after eightfold increase in one month! Avis squeeze ends, halved in a day, plunges for the second consecutive day

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Avis Budget Group (CAR) stock has plunged for the second consecutive day, after rising from $100 to nearly $850 in a month, with its main gains coming amid the fastest rebound in U.S. stock market history. There are signs that speculation in U.S. stocks is weakening.

During early trading on Thursday, Avis shares plummeted 50%, dropping $179 per share to $223.50. On Wednesday, they had already fallen 38% to $444, after hitting a record high of nearly $848 during Wednesday's early session. The market widely expects the company to issue new shares to ease the short squeeze.

After the U.S. stock market closed on Wednesday, Avis announced it would release its first-quarter financial results before the market opens on April 29, about a week earlier than last year. With the earnings report date moving forward, the market fears the company may take the opportunity to issue new shares, putting pressure on the stock price.

JPMorgan analyst Ryan Brinkman downgraded Avis to "underweight" from "neutral" in a client report on Thursday, raising the price target from $123 to $165. He said the recent short-squeeze-driven surge in the stock may present management with an important opportunity to create long-term value through capital market operations, but even under the most optimistic scenario, the current stock price far exceeds reasonable levels.

According to Bloomberg data, Avis currently has about 35 million shares outstanding. As of March 31, there were about 9 million shares held short, and the company's market capitalization is around $9 billion.

The trigger for this round of short squeeze was that two investors—SRS Investment Management and Pentwater Capital Management—combined direct holdings and total return swaps to effectively control more than 100% of Avis' outstanding shares, causing the stock price to surge from around $100 on or around March 20th.

The company applied in March to issue up to 5 million new shares at market price through a group of Wall Street sellers, with proceeds potentially used to pay down debt. But the market generally believes the company is unlikely to actually issue new shares before the earnings report. The two major shareholders may also be waiting for the earnings report before considering whether to reduce their holdings.

SRS Investment Management is headed by Jagdeep Pahwa, who also serves as executive chairman of Avis. Due to Pahwa’s insider status, SRS may not be allowed to sell shares before the earnings report. SRS holds 17.4 million shares and an additional 2.9 million shares via swaps, making it the largest Avis shareholder.

According to a proxy dated April 2, Pentwater, based in Florida, holds 7.8 million shares directly and 10.2 million shares via swaps. Pentwater is led by Matthew Halbower and is known for merger arbitrage. Also, the "short-swing rule" under the Securities Exchange Act of 1934 may require them to return profits from shares held less than six months, and most of Pentwater’s holdings beyond 3 million shares have been held for less than six months.

Even after a sharp decline, Avis stock remains relatively expensive—based on expected 2026 earnings of about $4 per share, the price-earnings ratio is around 60 times; based on the estimated 2026 EBITDA (earnings before interest, taxes, depreciation, and amortization) of about $800 million, the enterprise value multiple is close to 20 times, while historically Avis trades at about 10 times. The company currently carries about $6 billion in corporate debt.

By comparison, competitor Hertz's revenue is about 75% of Avis's, but its market cap is only $2.1 billion, about 20% of Avis's. Hertz shares are up about 20% this year, while Avis remains up about 100%. Avis, Hertz, and privately held Enterprise together control about 90% of the U.S. car rental market.

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