Avis Shares Suffer 70% Decline Over Two Days, Prompting Trading Halts

Avis Budget Group Inc. Shares Plummet 53% Amid Abrupt Reversal

Shares of Avis Budget Group Inc. have reversed their torrid rally, plummeting as much as 53% on Thursday, following multiple trading halts. This decline deepens a selloff that has wiped out more than 70% of the car-rental company's value in the past two days, bringing an abrupt end to an advance that began late last month.

The company's price surge, which reached over 600% in a little over four weeks, was largely driven by investors rushing to buy back shares to close out positions after Pentwater Capital Management LP disclosed its acquisition of a sizable stake in the company in March. This move echoes the meme-stock frenzy of the pandemic, where day traders banded together to push up stocks of companies like GameStop Corp. that were targeted by short sellers.

The steep run-up in Avis's stock had drawn considerable attention on Wall Street, where some analysts were warning that it was almost certain to snap eventually, given its lack of connection to the company's underlying fundamentals. The market dynamic shifted after Pentwater's share purchases set off a rush to close out those bets, given that a large chunk of the stock had been snapped up.

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The company's large shareholders, including Pentwater Capital Management LP, which owns about 20% of Avis's shares, and SRS Investment Management, which holds over 49%, were likely affected by the share price surge. Avis filed for a so-called "at-the-market" offering for up to 5 million shares on March 27, a process that allows companies to sell shares into the open market at prevailing prices.

The share price surge hit short sellers hard and made Wall Street analysts even more negative on Avis's stock. JPMorgan Chase & Co. analyst Ryan Brinkman cut the stock to underweight, saying it had "risen far above the level we feel can be justified by even the most optimistic view of underlying earnings fundamentals." The drop may be providing some relief to investors who bet against Avis, as those who could stomach the recent enormous mark-to-market losses are seeing a light at the end of the tunnel, according to Ihor Dusaniwsky, a managing director at S3 Partners.