When a stock explodes 108% in a session — rather out of the blue — as Avis did on Wednesday, there is only one thing you should do, says Deutsche Bank analyst Chris Woronka.
Drive out of dodge before you get run over.
“Our first order of business is to emphasize that this downgrade is not a call to short Avis. Simply put, it is a view that investors who owned the stock prior to Tuesday should take profits. We simply cannot justify, using any reasonable traditional valuation metric, the $10.5 billion of incremental value generated by the more than doubling of the stock in one day,” wrote Woronka in a research note to clients on Wednesday.
Woronka downgraded his rating on Avis to Sell from Hold. The analyst sees fair value in the new meme stock favorite at $210 a share, or 41% lower from current levels.
Avis shares plunged 17% in Wednesday’s session. But to be sure, Tuesday’s session was wildly different for Avis as Yahoo Finance’s Ines Ferre reports. The rental car’s stock spiked 200% before giving back some of those gains in the afternoon. Shares finished the day up 108%. Avis shares were repeatedly halted due to extreme volatility.
The massive move arrived after Avis reported a better than expected third quarter, which was headlined by record net income.
A short squeeze was also likely at play as short interest has increased over the last month, according to S3 Partners.
“CAR is the second largest short in the domestic Trucking sector,” Ihor Dusaniwsky of S3 Partners told Yahoo Finance.
Explained Deutsche Bank’s Woronka, “We fully acknowledge that the unnatural and volatile trading in the stock on Tuesday (coupled with high short interest coming into the day) could result in additional gains based on technical or shareholder dynamics that we do not attempt to analyze. But to reiterate, if we were in the shoes of an institutional investor and owned the stock currently, from a fundamental risk-reward standpoint, we would sell it.”
