The move marked an end to a stratospheric rally, which began late-March.
This story began late last month, with Avis being targeted by short sellers who sold borrowed stock, betting that it would fall further. However, Pentwater Capital Management, a hedge fund, disclosed that it had acquired a sizeable stake in the company, triggering a huge short squeeze in the stock.
From its March 30 closing of $135, the stock went up by as much as 428% in the next 15 trading sessions, declining only once during that period, to close at $713.97 on April 21. As per Bloomberg data, Pentwater holds close to 20% stake in Avis, while 49% is held by another firm called SRS Investment Management.
“When a short squeeze like Avis this month or GameStop in 2021 occurs, it attracts retail attention and creates a herd mentality,” said Michael O’Rourke, the chief market strategist at JonesTrading.
The rally seen in Avis drew significant attention on Wall Street, with nearly every single analyst predicting that the move will snap sooner or later as it had little connection to the company’s fundamentals. The stock outperformed its peer Hertz Global Holdings Inc. by a distance, which also more than doubled in value since late March, only to drop 25% in the last three sessions.
Before Thursday’s session, JPMorgan cut the stock to “underweight”, stating that it had risen “far above the level we feel can be justified by even the most optimistic view of underlying earnings fundamentals.”
According to Bruce Cox, President of Harrington Alpha Fund, who shorted Avis, said that the moves are 100% driven by the float, momentum, algorithms and short squeeze. “It’s like a domino,” he said. “There was no reason, fundamentally, for the rise in the stock.”
(With Inputs From Agencies)
