Key Takeaways
- • Avis Budget Group shares fell as much as 3.5% to $99.20 on Monday, erasing all gains from a 600% short squeeze earlier this year, according to Bloomberg.
- • The stock had briefly pushed above $700 in March, before Pentwater Capital Management disclosed the sale of 4.3 million shares, prompting the stock to surrender 70% of its gains in two trading sessions.
- • Pentwater agreed to pay $650m to settle litigation brought by Avis over short-swing profits, after Avis accused the hedge fund of contributing to the volatility.
- • Short interest has fallen to 29% of Avis's public float from its March peak, per S3 Partners, while rival Hertz still has 81% of its float sold short.
- • Continued weakness reflects deteriorating rental car industry fundamentals, including inflation, elevated interest rates, weak international travel demand and disappointing earnings.
Summary
Shares in Avis Budget Group have surrendered all gains from a 600% short squeeze earlier this year, ending a volatile episode that inflicted heavy losses on bearish investors and led to a legal dispute with hedge fund Pentwater Capital Management, according to Bloomberg. The rental car company's shares fell as much as 3.5% to $99.20 on Monday, returning to levels seen before a sharp rally in March that briefly pushed the stock above $700.
The squeeze began after Pentwater disclosed an increase in its substantial Avis stake, triggering a buying frenzy as short sellers scrambled to cover positions. More than half of Avis's available shares were sold short at the time, which amplified the rally.
The reversal followed Pentwater's disclosure of the sale of 4.3 million shares, which caused the stock to surrender 70% of its gains in just two trading sessions. Avis subsequently accused the hedge fund of contributing to the volatility, and Pentwater agreed to pay $650m to settle litigation over short-swing profits.
The continued decline reflects deteriorating fundamentals across the rental car industry, where inflation, elevated interest rates, weak international travel demand and disappointing earnings are weighing on valuations. Short interest in Avis has fallen to 29% of its public float, substantially below its March peak, according to S3 Partners. Rival Hertz remains heavily targeted, with 81% of its float sold short.
Vikram Rai of First New York, who traded Avis during the squeeze, described the episode as one of his most profitable trades of the year, though he no longer holds a position. The episode underscores the risks of crowded short positions and how quickly speculative rallies can unwind once buying pressure subsides.
The squeeze began after Pentwater disclosed an increase in its substantial Avis stake, triggering a buying frenzy as short sellers scrambled to cover positions. More than half of Avis's available shares were sold short at the time, which amplified the rally.
The reversal followed Pentwater's disclosure of the sale of 4.3 million shares, which caused the stock to surrender 70% of its gains in just two trading sessions. Avis subsequently accused the hedge fund of contributing to the volatility, and Pentwater agreed to pay $650m to settle litigation over short-swing profits.
The continued decline reflects deteriorating fundamentals across the rental car industry, where inflation, elevated interest rates, weak international travel demand and disappointing earnings are weighing on valuations. Short interest in Avis has fallen to 29% of its public float, substantially below its March peak, according to S3 Partners. Rival Hertz remains heavily targeted, with 81% of its float sold short.
Vikram Rai of First New York, who traded Avis during the squeeze, described the episode as one of his most profitable trades of the year, though he no longer holds a position. The episode underscores the risks of crowded short positions and how quickly speculative rallies can unwind once buying pressure subsides.
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