3 Reasons CAR is Risky and 1 Stock to Buy Instead
Avis Budget Group trades at $75.35 per share and has stayed right on track with the overall market, losing 6.1% over the last six months while the S&P 500 is down 9%. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is there a buying opportunity in Avis Budget Group, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it's free.
Despite the more favorable entry price, we don't have much confidence in Avis Budget Group. Here are three reasons why there are better opportunities than CAR and a stock we'd rather own.
The parent company of brands such as Zipcar and Budget Truck Rental, Avis (NASDAQ:CAR) is a provider of car rental and mobility solutions.
Revenue growth can be broken down into changes in price and volume (for companies like Avis Budget Group, our preferred volume metric is available rental days - car rental). While both are important, the latter is the most critical to analyze because prices have a ceiling.
Avis Budget Group's available rental days - car rental came in at 61.82 million in the latest quarter, and over the last two years, averaged 3.4% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.
We track the long-term change in earnings per share (EPS) because it highlights whether a company's growth is profitable.
Sadly for Avis Budget Group, its EPS declined by 73.4% annually over the last five years while its revenue grew by 5.1%. This tells us the company became less profitable on a per-share basis as it expanded.
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Avis Budget Group burned through $1.20 billion of cash over the last year, and its $5.39 billion of debt exceeds the $534 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
Unless the Avis Budget Group's fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of Avis Budget Group until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Avis Budget Group falls short of our quality standards. After the recent drawdown, the stock trades at 7.2× forward price-to-earnings (or $75.35 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. Let us point you toward the Amazon and PayPal of Latin America.
Market indices reached historic highs following Donald Trump's presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we're leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.
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