The automotive rental firm’s shares soar after an enormous surge in earnings

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

Luke Sharrett | Bloomberg | Getty Images

Car rental stock Avis Budget rose Tuesday after the company reported a stronger-than-expected third quarter that sparked massive trading volume.

The company reported earnings per share of $ 10.74 for the third quarter, beating Refinitiv’s consensus estimate by more than $ 4. Sales also exceeded expectations. Avis Budget’s board of directors also approved an additional $ 1 billion share buyback.

Around noon, the stock rose more than 100%. Trading in the share was suspended several times on Tuesday morning.

A large number of bets against the stock likely contributed to the size and speed of the day’s movement.

In the run-up to the profit report, according to FactSet, 20.5% of the free float of Avis Budget shares were sold short, an unusually high number. When a stock rises, short sellers are forced to cover their positions by buying stocks, which creates more upward pressure on the stock price. This is known as a “short squeeze”.

Some short squeezes were sped up this year due to retailers using social media sites like Reddit’s WallStreetBets. Strong interest from smaller investors contributed to dramatic moves in stocks like GameStop and AMC Entertainment earlier this year.

As of 11:38 a.m. ET, more than 17 million shares of Avis Budget were traded on Tuesday, according to FactSet.

The US rental car industry has been in a state of upheaval since the pandemic began. Travel demand plummeted in 2020, causing Avis rival Hertz to file for bankruptcy, and production delays for automakers resulted in a shortage of available cars in 2021 as travelers hit the streets.

The Hertz share was also the subject of a trading frenzy at the beginning of the year. The company is now out of bankruptcy.

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