Key Takeaways
Shares of Avis Budget Group (NASDAQ: CAR) have plummeted 78% from their recent peak, and the company is now demanding profits from a hedge fund involved in the short squeeze under a niche trading rule.
"The unwind was just as fast," Bloomberg reported, noting that hedge fund Pentwater Capital Management sold $510.9 million in Avis shares across April 22 and 23, contributing to the collapse.
The stock, which traded near $148 on March 27, surged to a high of $847.70 in late April before crashing to $182.01 by April 28. The squeeze was fueled by SRS Investment Management and Pentwater, who together controlled roughly 71% of Avis shares, against short interest that reached nearly 50% of the float. The sell-off was accelerated by a Q1 earnings report revealing a $234 million net loss.
The dispute introduces a new risk for funds engaging in squeezes, potentially setting a precedent for targeted companies to legally reclaim trading profits. The volatility also hit competitor Hertz (NASDAQ: HTZ), which fell 5% in sympathy, highlighting sector-wide anxiety over fleet financing and debt.
The mechanics of the squeeze were extreme, pitting professional investors against each other. With two firms controlling the vast majority of available shares, short sellers who had bet against the stock were forced to buy back shares at exponentially higher prices to cover their positions, creating a feedback loop. However, the underlying fundamentals failed to support the valuation. Avis reported a Q1 2026 net loss of $234 million on revenue of $2.53 billion, carrying approximately $6.1 billion in corporate debt and a negative stockholders’ equity of $3.1 billion.
The situation is drawing comparisons to other historic short squeezes, such as GameStop in 2021 and Volkswagen in 2008, where concentrated ownership allowed for a temporary, dramatic dislocation from fundamental value. In the Avis case, the action was driven by professional hedge funds rather than retail investors. The company is now leveraging Section 16(b) of the Securities Exchange Act, the "short-swing profit rule," which is designed to prevent insiders from making quick profits on trades within a six-month period.
The move by Avis to reclaim profits could have a chilling effect on hedge funds considering similar strategies in heavily shorted stocks. Investors will now watch for the outcome of this legal challenge and the upcoming Avis conference call for guidance on its full-year 2026 EBITDA, previously estimated at $800 million to $1 billion.
This article is for informational purposes only and does not constitute investment advice.
