Insights

Why Avis Budget Stock Crashed Today

What happened

Well, that was kind of a disaster!

Yesterday after close of trading, car rental company Avis Budget Group (NASDAQ: CAR) reported a blowout quarter in which sales of $3.2 billion grew 37% year over year, beating analyst projections, and earnings blew the roof off, coming in at $15.94 per share while Wall Street had only expected $11.48.  

Avis Budget shares immediately jumped 6% in after-hours trading. But the sun set, the sun rose again, and moved on into the afternoon; instead of building on its gains, Avis stock has given them all back and is in fact down 4.9% as of 2:50 p.m. ET.

So what

Coming out of the pandemic, you’d want to see things getting at least a bit better for Avis this year, but the company’s actual results were even more than investors had hoped for. Thirty-seven percent sales growth resulted in the “best quarter revenue in Company history,” said Avis. The company’s $15.94 per-share profit was similarly the best Avis has ever done.  

CEO Joe Ferraro credited “enhanced revenue generation, diligent fleet management and stringent cost control” for the supercharged profits, pointing out that Avis saw strength not just in the U.S. but abroad as well, with its international division turning in its second-best-ever performance.

Now what

About the only thing that Avis might have done to make this news better yesterday would have been to announce strong guidance for the coming quarter (or the rest of the year). Sadly, Avis didn’t do that, giving no guidance at all in its earnings report. But even so, given that what Avis did say was so good — the record profits and all, and also the fact that adjusted free cash flow of $1.1 billion was 43.5% ahead of reported net income — it’s surprising that investors are reacting so negatively to the company’s report today.

With Avis now on track to meet or beat analysts’ projections for more than $38 per share in full-year profit, Avis stock really does look quite cheap at just 4.5 times current-year earnings. While the shares may be trading lower today, I wouldn’t be a bit surprised to see that trend turn around, and for Avis stock to resume driving higher in short order.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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