As Avis Soars In A Historic Squeeze, Who's Next: Here Are The Most Shorted Stocks
Not many traders of the "current generation" recall the insanity that was the Volkswagen short squeeze which, for a few brief hours, made the German automaker the largest company in the world back in 2008 when, as a result of internal collusion among the biggest holders, there were not enough shares in the float to cover all the shorts sparking a mad short covering dash. For most, the meme stonk frenzy of early 2021 when both GameStop and AMC exploded higher, was the closest they would get to reliving those glory days.
But courtesy of troubled rental car company Avis, which has been a revenue-declining, cash-incinerating machine without one quarter of positive free cash flow in years...
... and which until recently traded at a generous market cap of $3.5 billion, has seen its stock pull a total Volkswagen move, soaring 7x in just three weeks, and rising above $700 earlier today...
... not because of some transformational change in the business, but because the two largest holders, SRS and Pentwater which collectively control about 70% of the common stock, are creating a massive institutional short squeeze.
Similar to Volkswagen, which had been heavily shorted into its volcanic eruption nearly 20 years ago, as of Monday, 86.2% of Avis' free floated shares were shorted, data analytics firm Ortex showed, just short of an all-time peak of 89.3% recorded in March. According to Bloomberg, the number is notably lower, at 54.4%, but still one of the highest in the Russell 3000.
As noted above, Avis' shares are heavily owned by two firms. Hedge funds SRS Investment Management and Pentwater Capital Management together hold more than 25.2 million shares, accounting for over 71% of total outstanding shares, the data compiled by LSEG showed.
According to a filing earlier this month, Pentwater significantly increased its stake in Avis, sharply shrinking the available float even more, in what may have been an attempt to corner the shorts. A new filing on Tuesday showed that Pentwater acquired another 34,700 shares, along with put and call options, at $85 each, taking its total holding to 7.08 million shares.
The stake would be worth more than $4.3 billion based on Avis' last closing price, according to Reuters calculations. SRS' position would be worth $8.01 billion more than what it was at the start of the month.
"If they choose not to lend their shares and to make it difficult for people to borrow, then this really creates a short squeeze situation," said Steve Sosnick, chief market analyst at Interactive Brokers.
"On top of it, you now have other momentum buyers who understand that there is a short squeeze going on and they're jumping in from the long side to participate as the stock rallies."
This is not the first time Avis has seen a "meme-like" rally, having last experienced a similar surge in 2021. The stock is currently the second-most trending ticker on WallStreetBets.
Meanwhile, the underlying business remains catastrophic: in February Avis reported a decline in quarterly revenue and posted a net loss of $856 million for the December quarter. Banks, which still believe fundamentals matter in the short-term, were quick to go scorched earth on the company. Barclays downgraded the stock to "underweight" from "equal-weight" on Monday, saying the current stock price is not justified even with improved fundamentals. Deutsche Bank analyst Chris Woronka also downgraded the stock to "hold" from "buy" earlier this month.
Yet by attracting even more shorts, the banks have ensured that the squeeze persists even longer before it eventually fizzles as all such squeezes eventually do. The question, however, is how many shorts will be able to weather the flood of daily margin calls before they are eventually rewarded.
Meanwhile, enterprising traders are already looking for the next big short squeeze. To help them, we have screened for the most shorted Russell 3000 companies, sorted by Short Interest as % of Float.
CAR is #3 in the list, after perennual most shorted names, NMAX and GRPN, and right above HTZ which, if we had to wager, would say may be the next huge squeeze candidate because just like Avis, Hertz has a huge holder(Knighthead who owns 57.6% of the common) while several banks (UBS, CIBC, Nomura, Morgan Stanley) in the top 10 positions...
... suggest that similar to the Archegos debacle, there is a lot of levered hedge fund accumulation in various Prime Brokerages, as investors are patiently waiting for this name to soar higher.
The full list of over 200 most shorted stocks is available to pro subscribers.