A short squeeze is a condition in which a stock possessing high short interest rallies in price unexpectedly over a short period. Essentially, a short squeeze is triggered by excessive bets against short-sellers.

This year has seen many short squeezes, the most notable among them being the notorious GameStop Corporation (GME) short squeeze earlier this year. However, GME’s rally was short-lived owing to its bleak fundamentals.

Avis Budget Group, Inc. (CAR) and Bed Bath & Beyond Inc. (BBBY) currently possess high short interest, and it appears that retail traders have started squeezing the short-sellers because these two stocks rallied more than 60% in price last week. Therefore, we think it could be worth adding these stocks to your watchlist.

Avis Budget Group, Inc. (CAR)

CAR and its subsidiaries provide its customers with truck and car rentals and other associated services. The Parsippany, N.J., company operates the Avis brand, a vehicle rental system, and the Budget Truck brand, a truck rental business. It has a 27.25% short float.

In its third fiscal quarter, CAR repurchased approximately 11.6 million shares of its common stock, bringing its outstanding shares down by 16% and improving shareholders’ return. The company also redeemed $235 million of its 5.25% senior notes due 2025. This should strengthen the company’s balance sheet.

CAR’s revenues increased 95.6% year-over-year to $3.00 billion in its  third fiscal quarter, ended September 30. Its adjusted EBITDA rose 380.5% from the same period last year to $1.06 billion. Its adjusted net income and adjusted EPS stood at $693 million and $10.74, respectively, up 777.2% and 850.4% from the prior-year quarter.

A $3.15 consensus EPS estimate for the current quarter (ending December 2021) indicates a 975% year-over-year increase. Likewise, the $2.22 billion consensus revenue estimate for the current  quarter reflects a 63.7% improvement from the prior-year quarter. Furthermore, CAR has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.

The stock has gained 71.4% in price over the past week to close Friday’s trading session at $297.46. It has gained 861.1% over the past year.

Bed Bath & Beyond Inc. (BBBY)

BBBY operates a retail store chain through the segments of North American Retail and Institutional Sales. The Union, N.J., company sells domestic merchandise, bath items, kitchen textiles, and home furnishings. It has a 22.16% short float.

On November 2, BBBY announced that it expected to complete its $1 billion share repurchase program within this year, two years ahead of schedule. The company expects to fortify its long-term value creation through this repurchase.

Also on Nov.2,  the company announced the launch of its digital marketplace and a strategic collaboration with The Kroger Co. (KR) to offer KR customers BBBY’s assortment of home and baby products. The multi-category omnichannel collaboration and BBBY’s expansion in the digital space should enable the company to reach out to more customers.

For its  second fiscal quarter, ended August 28, BBBY’s net sales came in at $1.98 billion. Its selling, general and administrative expenses decreased 23.2% year-over-year to $652.97 million. And its adjusted net income and adjusted EPS stood at $3.70 million and $0.04, respectively.

Analysts expect BBBY’s EPS to increase 90% year-over-year to $0.76 for the next quarter (ending February 2021).

BBBY’s stock has gained 27.1% in price year-to-date and 60.4% over the past week to close Friday’s trading session at $22.57.

CAR shares were trading at $293.31 per share on Monday afternoon, down $4.15 (-1.40%). Year-to-date, CAR has gained 686.35%, versus a 26.68% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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