Why This Car Rental Stock Sank Today

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© Provided by The Motley Fool Why This Car Rental Stock Sank Today

What happened

Renewed coronavirus fears are back to haunt companies relying heavily on the economy’s reopening. Avis Budget Group (NASDAQ: CAR) is one of them: The stock extended its recent downfall and had lost 5.1% at 10:35 a.m. EDT on Thursday.

So what

New COVID-19 variants are turning out to be a big threat even as economies across the globe strive to get back on the growth track. In one of the biggest global developments, Japan just declared a state of emergency ahead of the Summer Olympics as coronavirus cases mount. At home, states like California are reporting a rising number of coronavirus cases after months of decline even as I write this. To top that, latest estimates from the Centers for Disease Control and Prevention reveals the more contagious delta variant of COVID-19 as the dominant coronavirus strain in the U.S.

© Getty Images An anxious person in a mask waiting inside a car.

None of this bodes well for Avis Budget, as another potential COVID-19 wave and lockdowns would mean further travel restrictions and pullback in demand for car rentals. Avis Budget shares more than doubled year to date through June as vaccine rollouts and easing of travel restrictions spurred demand.

Worse yet, the fresh COVID-19 worries come at a time when competitor Hertz Global Holdings (OTC: HTZZ) has also bounced back into the game: Hertz emerged from bankruptcy last week with a stronger balance sheet and believes it’s well positioned to take advantage of the spurt in demand for car rentals in the U.S. Fresh coronavirus concerns, though, appear to be hitting Hertz shares as well, which were down nearly 7% as of 10:35 EDT today.

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Now what

Avis Budget shares shot through the roof this year, so any developments that could potentially hit demand for the company’s services are bound to hurt the stock’s price. As it is, Avis Budget refrained from providing full-year guidance last quarter for two reasons: the uncertainty around the coronavirus pandemic and the global chip shortage that’s hurt the company’s plans to expand its fleet.

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The chip shortage is here to stay, fears of a surge in coronavirus infections loom large, and a competitor is back in the market. That pretty much sums up why Avis Budget shares are losing ground.

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Neha Chamaria 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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