By Shashwat Chauhan
April 21 (Reuters) - Shares of car rental company Avis Budget hit a record high on Tuesday, having quadrupled so far in April, as analysts pointed to a short squeeze that has dealt steep losses to investors betting against the stock.
As of Monday, 86.2% of Avis' free floated shares were shorted, data analytics firm Ortex said, just short of an all-time peak of 89.3% recorded in March. High short interest makes a stock more vulnerable to a short squeeze, as investors betting against
the company are forced to unwind their positions when its share price rises sharply.
Short sellers have suffered losses worth around $4.09 billion so far this month, with nearly $1.01 billion on Monday alone, when Avis shares jumped more than 23%. Its shares were last up 6.4% at $647.7 in morning trading on Tuesday.
"We believe the parabolic increase of CAR's share price the past month has been driven almost exclusively by technical factors that have created a wide supply/demand mismatch on the shares with short-sellers facing a sharp squeeze," Barclays analysts said.
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 more than 71% of total outstanding shares, data compiled by LSEG showed.
According to a filing earlier this month, Pentwater Capital increased its stake in Avis to more than 7.8 million shares, sharply shrinking the available float.
SRS Investment and Pentwater Capital did not immediately respond to Reuters' requests for comment.
This is not the first time Avis has seen a "meme-like" rally, the shares last experienced a similar surge in 2021. The stock is currently the second-most trending ticker on retail investor forum Stocktwits.
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, citing similar reasons.
Avis in February reported a decline in quarterly revenue and posted a net loss of $856 million for the December quarter.
(Reporting by Shashwat Chauhan in Bengaluru; Editing by Shilpi Majumdar)
