Two-week surge of 200%! Avis Budget Group, Inc. (CAR.US) epic short squeeze followed by another showdown between the bulls and bears: the short interest ratio of outstanding shares has risen to 58%

The stock price of car rental company Avis Budget Group, Inc. (CAR.US) has tripled in just two weeks, devastating investors who were shorting the stock. However, the short sellers have not retreated and have instead further increased their bets - according to S3 Partners data, the company's stock short position as a percentage of free float has reached 58%, a near ten-year high. Despite Avis' stock price soaring over 200% in the past 10 trading days leading up to Tuesday, causing short sellers to suffer nearly $2.5 billion in market value losses, the short positions continue to rise. S3 Partners' Ihor Dusaniwsky pointed out: "Short sellers are actively shorting Avis Budget Group, Inc. stock, waiting for a pullback after this nearly month-long rally." Before the rally began on March 30, the stock short position as a percentage of free float was 54%. On Wednesday, Avis' stock price dropped 19% at one point, before narrowing to 3.84%, ending its longest winning streak since 2019. During the same period, its competitor Hertz Global Holdings Inc. (HTZ.US) saw a 56% increase in stock price from March 31 to April 14, before dropping 6.15% on Wednesday. The catalyst for this capital frenzy started with an epic "short squeeze" in early April. Pentwater Capital Management suddenly announced a large stock purchase, quickly increasing its stake to 22%, and with long-time major shareholder SRS Investment Management already holding nearly half of the shares, the available tradable chips in the market became extremely limited. The highly concentrated chips put short sellers, who were betting on a stock price drop, in a tight spot. As the stock price continued to rise with the influx of funds, short sellers were forced to buy back stocks at higher prices to cover their losses, which in turn further fueled the spiral upward movement of the stock price. As S3 Partners mentioned, this liquidity squeeze-induced "crash" may be brutal, but it has become the most entertaining game spectacle in the market. However, as the smoke from the first wave of forced covers had not yet cleared, the market logic around April 15 quietly changed. If the previous rise was due to a lack of loanable securities leading to chip squeeze, the current situation has evolved into a standoff over valuation logic. Although research institutions like Deutsche Bank Aktiengesellschaft acknowledged that the chaos in American airports has indeed supported Avis Budget Group, Inc.'s performance through increased long-distance driving demand, analysts generally believe that the current multi-fold increase compared to peers far exceeds the business fundamentals. This significant valuation deviation not only failed to scare off speculators, but also enticed more "new short sellers" to enter, viewing the current high stock price as an ideal sniper point. According to data, out of the eight ratings on the stock, only one is a buy. Deutsche Bank Aktiengesellschaft analyst Chris Woronka said, "We find it difficult to justify the current stock price with traditional indicators and a 12-month investment horizon." He downgraded Avis' stock rating from buy to hold, adding, "We believe that the risk of a further rise in the stock price due to the short squeeze still exists." This is not the first time Avis has experienced such drastic fluctuations in meme stocks. In 2021, when the company planned to transition its fleet to electric vehicles, the stock became popular among retail investors. However, according to Ashwin Bhakre of Vanda Research, retail investor sentiment towards Avis has also deteriorated this time, with funds flowing into the stock sharply turning negative in April. He added that daily outflows had reached around $10-12 million, marking one of the largest outflows in the stock's history. Chief Market Strategist at Miller Tabak + Co., Matt Maley, believes that the recent surge in stock price is mainly driven by short sellers rushing to cover their losses. "This rally is not due to fundamental improvements, but rather a sign of market bubble reemergence." He added, "The market may be on the verge of a correction, and Avis' stock price may see a significant drop as it returns to reality."