In epic short-squeeze situation, Avis Budget Group, Inc. (CAR.US) stock price continues to hit new highs! Wall Street issues warnings: valuation seriously deviates from fundamentals.

The stock of American car rental and sharing service provider Avis Budget Group, Inc. (CAR.US) has experienced a fierce short squeeze in the past few weeks, with a cumulative increase of over 400% in the past six weeks. The stock rose over 23% on Monday, closing at $608.8, reaching a high of $612.58 during the trading session and hitting a new all-time high. The catalyst for Avis Budget Group, Inc.'s stock frenzy began with an epic short squeeze in early April. Pentwater Capital Management announced a large position in Avis Budget Group, Inc., rapidly increasing their ownership to 22%, along with long-time major shareholder SRS Investment Management holding nearly half of the shares, leading to a severe shortage of available tradable shares in the market. The highly concentrated ownership made short sellers, who had bet on a stock price decline, trapped. As the stock price continued to rise under the pressure of funds, short sellers were forced to buy back shares at higher prices to cover their losses, further fueling the spiraling rise in stock prices. According to financial analysis firm S3 Partners, this liquidity squeeze-induced "crash" has become one of the most spectacular spectacles in the market. However, as the aftermath of the first wave of forced closures had not yet dissipated, the market logic shifted quietly around mid-April. If the previous rally was caused by a squeeze due to a shortage of shares to borrow, the current situation evolved into a confrontation over valuation logic. Although research firms like Deutsche Bank Aktiengesellschaft acknowledge that the chaotic situation in American airports has indeed supported Avis Budget Group, Inc.'s performance by increasing demand for long-distance self-driving, and the company is expected to be profitable, analysts generally believe that the current multiples of the stock price compared to its peers have far exceeded the fundamental business support. This significant valuation deviation not only failed to deter speculators but also lured more "new shorts" to enter, viewing the current high point of the stock price as an ideal target. Many Wall Street banks have expressed cautious views on the future stock price of Avis Budget Group, Inc. Barclays has downgraded Avis Budget Group, Inc. to "sell." The bank attributes this soaring of Avis Budget Group, Inc. to a mismatch of supply and demand - about 71% of the company's direct holdings are concentrated in the hands of two shareholders, and considering outstanding derivative contracts, its economic interest may exceed 100%. As the short position of Avis Budget Group, Inc. approaches 100% of tradable shares, a short squeeze has been initiated. Analyst Dan Levy warns that "all these factors are leading the market to be uncertain about how long this situation will last and whether the stock price will continue to rise." He and his team believe that even though the fundamentals of the car rental industry have improved, the current stock price lacks reasonable support. They predict that the stock price of Avis Budget Group, Inc. will eventually return to normal levels, especially in the event that the company may issue new shares for financing while the stock price is rising. Matt Maley, Chief Market Strategist at Miller Tabak + Co., believes that the recent surge in the stock price of Avis Budget Group, Inc. is mainly driven by short sellers rushing to cover their losses. He stated, "This rally is not due to fundamental improvement, but a sign of market bubble resurgence." "The market may be about to enter an adjustment period, and the stock price of Avis Budget Group, Inc. may experience a significant decline as it returns to reality." 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 the stock rating of Avis Budget Group, Inc. from "buy" to "hold." He added, "We believe that the risk of a short squeeze causing further price increases still exists." It is worth mentioning that this is not the first time Avis Budget Group, Inc. has experienced such drastic fluctuations in meme stocks. In 2021, when the company planned to transition its fleet to electric vehicles, the stock became a favorite of retail investors. However, according to Ashwin Bhakre of Vanda Research, this time, retail investors' sentiment towards Avis has also turned negative, with a sharp shift in fund flows to negative in April. He added that daily outflows have reached around $10-12 million, making it one of the largest outflows in the stock's history.