Shares of Avis Budget Group (NASDAQ: CAR) have taken investors on a roller-coaster ride in the last 18 months. The stock fell from $48 in February 2020 to $11 in March 2020 as the COVID-19 pandemic decimated companies in the travel, entertainment, and leisure sectors.
Right now, a single share of Avis Budget Group is priced at almost $250, which means it has gained a staggering 2,180% in the last 20 months.
But historical gains should not matter much to current investors. So let’s see if Avis Budget Group should be part of your portfolio right now.
The bull case for Avis Budget Group
Avis Budget Group is a car rental company valued at a market cap of $14 billion. In the third quarter of 2021, Avis almost doubled its revenue to $3 billion year-over-year. Sales were also higher by 9% compared to the same period in 2019.
It reported a net income of $674 million and adjusted EBITDA of $1.05 billion in Q3. The utilization for Avis stood at 71.6%, indicating that its fleet is well-positioned to meet rising demand.
The company also ended Q3 with $1.3 billion in liquidity and another $2.7 billion of fleet funding capacity. In the last 12-months, its operating cash flows stood at $2.61 billion. Its average rentals per day rose to $75 in Q3 compared to the year-ago period where this figure stood at $53.
Analysts tracking Avis expect it to increase sales by 61.7% to $8.73 billion in 2021 and by 11.4% to $9.73 billion in 2022. Comparatively, its bottom line is forecast to improve from a loss of $6.21 per share in 2020 to earnings of $13.54 per share in 2022.
The bear case for Avis Budget Group
Shares of Avis have gained over 600% year to date, and the stock is valued at a forward price to 2022 sales multiple of 1.5x, which is reasonable. Comparatively, its price to earnings multiple is also low at 18.5x. However, the company has a debt balance of more than $15 billion on its balance sheet, which is quite significant.
Avis Budget Group will need to generate consistent profits to meet interest obligations and cannot afford another round of pandemic-related lockdowns. Wall Street believes the stock is overpriced, and analysts have a 12-month average price target of $148, which is 40% lower than its current trading price.
So, should I buy Avis stock?
Avis can secure inventory to support strong consumer demand despite the ongoing semiconductor shortage that has impacted the automobile sector. Further, the company has reduced its outstanding share count by 16% in 2021 via buybacks which is a positive development as it will also boost the bottom line.
Its strong recovery in 2021, coupled with reasonable valuations and improving financials, make Avis Budget Group a good stock to buy right now.
What is the stock symbol for Avis Budget Group?
Avis Budget Group’s ticker symbol is CAR
What is the market cap of Avis stock?
Avis Budget Group is valued at a market cap of $14.1 billion
Does Avis Budget Group pay dividends?
No, Avis Budget Group does not pay dividends to shareholders
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Contributing Writer at MyWallSt
Aditya took an interest in the stock market during the financial crash of 2008-09. His favorite stocks include Roku and Apple as both companies enjoy a leadership position in their respective verticals and are poised to beat the broader markets consistently going forward.