Still some gas left in the tank
Avis Budget Group (CAR) did its best impression of Gamestop and AMC during Tuesday’s trading session. In what many suspect is a short squeeze, the rental car company was up over 200% at one point before closing the day up a still astounding 108%. As we wrote about in yesterday’s edition of the Daily Setup, the company released its earnings Monday and to say they destroyed analysts’ estimates is a severe understatement. Trading of the stock was halted multiple times Tuesday due to an immense increase in price volatility.
- Bloomberg noted that about 37% of the stock is borrowed and sold short.
- Exchange data estimates had short interest around 20%, which is still 18% higher than meme favorite AMC had before their short squeeze.
- The easiest and simplest way to think about a short squeeze is that investors that short the stock rush to buy the stock back in droves in order to cover their short position and reduce any future losses. This in turn drives the price of the stock even higher.
- Elsewhere, Elon tweeted that there’s no signed contract with Hertz, while Hertz reports that deliveries from Tesla have already started.
Meme stocks and short squeezes, while all the rage in 2021, are an inherently dangerous proposition and can lead to financial ruin if the risks are not well understood. The investors that gain the most from these rare events are the ones that have owned the stock before the squeeze takes place. Avis is up over 857% year-to-date. GME and AMC are up 997% and 1,725% respectively. For every story you hear of young traders making millions during one of these historic events, there are countless others that have blown up their accounts (and not in a good way). Tread carefully my friends.
Flip or Flop
^ a live look at Zillow HQ
Zillow announced its Q3 earnings yesterday, which turned out to be worse than some of its home listings. In addition to missing out on most financial estimates for the quarter, the company announced that it will cancel its home buying program, resulting in the layoff of 25% of its staff, or roughly 2k workers.
- As noted in yesterday’s edition of The Daily Setup, about 66% of the homes that Zillow had bought were relisted for less than the purchase price.
- Zillow reported a loss per share of 95 cents adjusted, with $1.74B in revenue, compared to the forecasted EPS of $0.16 on $2.01B in revenue.
- $Z dropped 11.52% during trading and fell an additional 10.55% afterhours
To say Zillow’s had a no-good, very bad week would be an understatement. You have to admit, it’s somewhat impressive that even though the real-estate market is hotter than Phoenix in the summertime, Zillow has managed to fumble the bag this badly and has to cancel its home buying program.
Good job team
Shares of athletic-wear and sports equipment company Under Armour (UAA) moved sharply higher Tuesday following a blow-out earnings report for fiscal Q3 2021. The company also increased their full-year guidance for the rest of the year, driving the stock up 16.5% on the day. UAA had an adjusted EPS of $0.31/share on $1.55B in revenue vs. analysts’ expectations of $0.15/share on $1.48B in revenue.
- The company also said that revenue growth for full-year 2021 is expected to increase to 25% vs. previous guidance in the low-20%’s.
- The improved outlook for the rest of the year is dependent on no additional shutdowns of manufacturing partners or other disruptions to the retail industry. Not exactly a safe assumption.
Under Armour is up 49% year-to-date compared to other industry giants like Nike (NKE) and Lululemon (LULU), which are up 19% and 33% respectively. While shares of UAA have a ways to go before even sniffing their all-time high of $52.57 achieved in September of 2015, they are within striking distance of their multi-year high of $27.72 which was put in on July 22, 2019. Keep UAA in your watchlist to see if these levels hold as resistance or become support after a potential breakout. Now if only the company will reduce the size of their logo on all of their products. I mean, blind people are even taken aback by the print size…I’m assuming.