Please ensure Javascript is enabled for purposes of website accessibility

Why Avis Budget Group's Shares Are Up Almost 90% Since April 30

By Travis Hoium – Updated Jun 9, 2020 at 11:28AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is the travel industry's recovery going to arrive ahead of schedule?

What happened 

Shares of Avis Budget Group (CAR 2.70%) jumped 30.6% in May, according to data provided by S&P Global Market Intelligence, and their rise didn't stop there. Shares rose another 49.9% from that level in just the first six trading sessions in June. In mid-morning trading Tuesday, they were up by a total of 89% from their April 30 closing level.

So what 

Avis Budget Group sold $500 million of senior notes in May with an interest rate of 10.5%, which is extremely high for any company. But investors weren't too concerned about the high price of that debt; instead, they were betting on an economic recovery that could revive the automotive rental company's fortunes. 

Car rental sign at an airport.

Image source: Getty Images.

There was a lot of market speculation in May that the economy will recover rather quickly, especially in the travel sector. According to the TSA, the number of travelers who went through U.S. airport checkpoints on June 4 was similar to the number of travelers on March 22 -- early in COVID-19 shutdowns as travel was plummeting. That June 4 figure was less than 15% of the daily number from a year prior -- an improvement from April levels in the 4% range, but still quite low.

Demand, then, is not picking up quickly, but there are at least some signs that airplane and hotel bookings are rising, which means car rentals will grow as well. 

Now what 

The sharp rise in Avis Budget's shares -- which has brought them almost back to where they started 2020 -- is impressive, but I think the company remains in a risky position. Travel is still heavily suppressed, and it may be years before it returns to anything near where it was in 2019. That will be problematic for Avis Budget, even more so given its new high-interest-rate debt, which will put an extra financial burden on the company. With so much uncertainty, this isn't a consumer discretionary stock that I'm willing to bet on for the long term. 

Travis Hoium 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Avis Budget Group, Inc. Stock Quote
Avis Budget Group, Inc.
$142.62 (2.70%) $3.75

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.