Avis stock doubles in a single day after a massive earnings beat sends hedge fund shorts fleeing.
Stock of rented cars The stock of Avis Budget soared on Tuesday as the business announced a better-than-expected third quarter, resulting in a jump in trading activity.
For the third quarter, the firm posted profits per share of $10.74, above the Refinitiv average estimate by more than $4. In addition, revenue exceeded projections. The board of directors of Avis Budget also approved an extra $1 billion in share repurchases.
The stock finished Tuesday at $185.7 percent, up 108.3 percent. The stock was up more than 200 percent for the day at one point, and trading was suspended three times Tuesday morning.
According to a FactSet transcript of the earnings call, executives made vague comments on the conference call about increasing purchases of electric cars for the company’s fleet, adding fuel to the rally. Chief executive officer Joseph Ferraro said the company would play a “big role” in the growth of electric cars in the United States.
The extent and pace of the day’s move were most likely influenced by a high number of wagers against the stock.
According to FactSet, 20.5 percent of Avis Budget’s float was sold short ahead of the earnings announcement, which is an unusually high proportion. Short-sellers are required to cover their bets by purchasing shares when the stock price increases, putting greater upward pressure on the stock price. A “short squeeze” is the term for this situation.
Retail traders who utilize social media platforms like Reddit’s WallStreetBets have hastened certain short squeezes this year. Smaller investors fueled big price movements in equities like GameStop and AMC Entertainment earlier this year.
On Tuesday, TD Ameritrade, a brokerage business, imposed trading limitations on the stock, including restricting some options methods and prohibiting short-selling.
Since the outbreak of the pandemic, the rental automobile sector in the United States has been in disarray. Travel demand fell precipitously in 2020, prompting Avis competitor Hertz to apply for bankruptcy protection, while manufacturers’ manufacturing delays have resulted in a lack of available automobiles in 2021 when passengers hit the road.
Hertz’s stock had a similar trading frenzy earlier this year. Since then, the firm has emerged from bankruptcy.
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