Darwinian Selection - Meme Edition
Having a bit of fun looking through CAR
I saw this headline yesterday:
“Barclays Downgrades Avis Budget to Underweight, Raises Price Target to $150”.
Then I checked the share price of Avis Budget (ticker: CAR).
It was at $609. Huh??!
Then I noticed that the stock went up by +$115 in ONE DAY.
i.e. it added in value the share price TARGET of Barclays in ONE day!
I didn’t even bother to check the valuation.
After all, Valuation doesn’t matter anymore … it hasn’t since 2020, or 0 A.C. (“0 Anno Covidi”).
But it’s still weird to see a car rental company rocket up by +500% in a month, during the biggest energy crisis since the last one, outperforming all my space ponzis that actually went to the moon!
The question I have is: “Why this one?!”
To start with, CAR has 35.3m shares outstanding but a “free float” of only 16.7m shares per Bloomberg.
This seems understated because:
- The largest shareholder, SRS, owns 17.4m shares (49% of the company)
- the second largest holder, Pentwater, owns 7.8m shares (22% of the company)
This would put the “free float” at only 10.1m shares, assuming that neither SRS and Pentwater are sellers (a BIG assumption).
Per Bloomberg, the short interest is 9m shares or 54% of Bloomberg’s float, but more like 90% of our estimated float.
Et voila. There’s your explanation why the stock rallied by +500% in a month.
(We can also blame options, but those just added “fuel to the fire” or even were the match that “started the fire”).
Lets add another dimension that is very important:
SRS is a multi-billion hedge fund run by Karthik Sarma, a “Tiger cub”. They’ve been invested in CAR for more than a decade and entered a co-operation agreement with the company in 2016. Karthik himself served on the board since 2020.
Since the cooperation agreement between the two parties, CAR proceeded to buy back shares and reduced its shares outstanding from 95m to 35m over a decade!!
At the same time, as can be seen from the chart above of SRS’ ownership in CAR, SRS actually added to its CAR stake since 2017.
Frankly, this is an incredible lesson in activism and investing by SRS. Well done to them.
There is one element missing to complete the home run, and that’s to actually cash out eventually, but I guess none cares about booking profits in this market.