Avis Budget Group stock closed up over 108% yesterday following a strong earnings beat Monday evening, but is it the right time to invest?
Nov. 3, 2021
Avis Budget Group (NASDAQ: CAR) saw its stock price more than double yesterday following a stellar earnings report on Monday evening. The company, based out of New Jersey, operates multiple car rental services including Avis Car Rental, Budget Car Rental, and Zipcar, to name but a few.
Q3 earnings showed a revenue increase of 96% year-over-year (YoY) following a huge surge in demand for rental cars as the world reopens following the COVID-19 pandemic. CEO Joe Ferraro underlined this confidence in the stock when he said, “we are cautiously optimistic that the worst is behind us.”
Why does this matter to investors?
Investors were overwhelmingly pleased with the emphatic earnings beat posted by Avis on Monday. The company reported impressive earnings per share (EPS) of $10.74, beating analyst estimates of $6.68 on revenue of just over $3 billion. These earnings, combined with some other factors, caused the stock to soar to more than double its original price. At one point on Tuesday, the stock was up over 200% with trading having to be halted multiple times.
A tweet by Tesla CEO Elon Musk — who else? — claimed that an extremely lucrative deal with one of Avis’ main rivals, Hertz, hadn’t officially been signed yet. This caused the bullish sentiments on Avis to deepen and only intensified the rise in price.
A short-squeeze also developed on the stock, with data from financial analytics platform Koyfin showing that roughly 20% of the company’s stock had been sold short. As the stocks’ value continued to rise, these shorts ended up down millions, forcing further sales and increasing the value even more.
So should I buy Avis stock?
Avis stock is a very interesting prospect for any investor. Right now though, the market seems particularly volatile following yesterday’s short-squeeze. While the company isn’t quite at meme-stock levels (yet), investors might be better off waiting for volatility to calm down before committing. The company certainly has extremely solid underlying financials, and the car rental market seems to be set to boom for the foreseeable future. As a long-term buy-and-hold proposition, Avis certainly looks like it could have serious potential. However, as this week has shown, a wide variety of factors come into play when analyzing stocks. Even something as insignificant as a tweet, albeit from the world’s richest man, can have a massive impact on a stock.
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