• JPMorgan joins Deutsche Bank and Barclays, which have also lowered their ratings this month while sounding similar caution about CAR’s valuation.
• The analyst believes the stock has risen far above a level justified by even the most optimistic view of its underlying earnings fundamentals.
• Michael Burry on Wednesday said the stock’s rally this year was ‘dumb luck.’

Avis Budget Group (CAR) shares have had a tremendous run this year, rising from the lows of approximately $86 in February to over $847 in April – a near-884% surge in a matter of about two months.

Interestingly, the stock is now in the news for its decline and an increasingly cautious take by many. On Thursday, the company's shares traded 18% lower at the opening bell and are down almost 60% from their April highs.

Meanwhile, JPMorgan also downgraded the rental car company to ‘Underweight’ from ‘Neutral’ on Thursday. The firm has a price target of $165, implying a 62.8% downside potential from the stock’s closing price on Wednesday.

JPMorgan Analyst Sees Unsustainable Valuation

According to TheFly, JPMorgan analyst Ryan Brinkman noted that the stock is trading at an “unsustainable valuation" that is not supported by the company's fundamentals. 

Brinkman sees the recent short-squeeze-driven rally in CAR shares as a "potentially significant opportunity for management to create lasting value via opportunistic capital market transactions," per TheFly.

The analyst believes the stock has risen far above a level justified by even the most optimistic view of its underlying earnings fundamentals.

JPM joins Deutsche Bank and Barclays, which have also lowered their ratings this month while sounding similar caution about CAR’s valuation.

The Short Squeeze 

A Reuters report from earlier this week noted that hedge funds SRS Investment Management and Pentwater Capital Management together hold the lion's share of the company's 35.3 million outstanding shares. They calculated that institutional stakeholding in CAR stock exceeded 71%. 

That leaves just over 10 million shares available for public trading, of which more than 9 million have been shorted, or about 93% of the float, according to Yahoo Finance. 

When a highly shorted stock suddenly rises, traders betting against the company are forced to buy back shares to cover their losses, thereby adding more buying pressure due to low availability and sending prices even higher. 

Michael Burry of “The Big Short” fame said on Wednesday that the rally in CAR shares this year was “dumb luck.”

How Did Retail Traders React?

On Stocktwits, retail sentiment about the stock turned ‘ bearish’ from ‘extremely bullish’, while messaging volumes remained ‘extremely high’ over the last 24 hours.

One user on the platform pointed out that the CAR short squeeze is even more outlandish than GameStop's meme-fueled rally.

Another user expects the stock to come back to $105.

For updates and corrections, email newsroom[at]stocktwits[dot]com.

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