NEW YORK (Reuters) - Shares of U.S. car-rental companies Avis Budget Group Inc CAR.O and Hertz Global Holdings Inc HTZ.N have driven out of the ditch in recent weeks, aided in part by storms that devastated the southern United States.

FILE PHOTO: The logo of Avis Budget Group vehicle rental company is pictured at the International Tourism Trade Fair (ITB) in Berlin, Germany, March 9, 2016. REUTERS/Fabrizio Bensch/File Photo

But skeptics remain, including large positions held by short-sellers in both stocks, amid doubts about fundamental aspects of the car-rental business.

Brad Lamensdorf, co-manager of the AdvisorShares Ranger Equity Bear ETF that bets on stock price declines and holds Avis short positions, said Avis faces challenges including balance-sheet leverage and strong competition.

“If we were to have a really rough spot in the market, I can’t imagine a worse company to own,” Lamensdorf said.

Even with the stock’s recent rise, some remain bullish. Tom Schindler, a portfolio manager at Avis shareholder Diamond Hill Capital Management still sees Avis shares as attractive, noting the company’s potential to buy back more shares.

“It’s been a more volatile stock than most,” said Schindler.

Both stocks rebounded from multi-year lows in June, with Avis shares up some 80 percent since those lows and Hertz rising 160 percent.

Recent company results showed signs pricing could be improving.

Now, during a seasonally slow time for rentals when travel tends to dip, the companies could see stronger demand in Texas, Florida and elsewhere after hurricanes Harvey and Irma, analysts said. Car damage stands to benefit Hertz and Avis by raising demand and prices for used vehicles, a potential boon as the companies sell inventory to refresh fleets.

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“Irma and Harvey, while they have caused destruction, are probably going to create a financial windfall for both the rental car companies,” said John Healy, an analyst with Northcoast Research.

Hertz and Avis are the second- and third-biggest players behind Enterprise in the U.S. rental car market, where 2.3 million cars are available, according to Fundstrat Global Advisors.

Fundstrat estimates 500,000 cars were destroyed during Harvey, said managing director Sam Doctor, which “essentially has changed the dynamic because every car that was destroyed in Texas is going to be replaced.”

But some have said the gains are overdone. Morgan Stanley last week cut its Hertz stock rating to “underweight”, its same rating as for Avis.

Avis shares are just over half their value of three years ago, while Hertz shares are less than one-fifth of theirs.

Doubts about over-capacity and industry pricing have weighed as have concerns that off-lease cars are flooding the used-car market. The rise of car-sharing companies also make some investors wary.

The stocks have drawn high-profile investors. Carl Icahn’s Icahn Associates owns about 35 percent of Hertz, Gabelli Funds owns 8 percent of the company, while Glenview Capital Management owns 9.4 percent of Avis and 6.8 percent of Hertz, according to Thomson Reuters data.

Short-sellers held 40 percent of shares outstanding in Avis as of Aug. 30 and 33 percent of Hertz.

Hertz short-sellers had $168 million in paper losses in 2017 as of Friday, while Avis shorts are down $104 million, said Ihor Dusaniwsky, managing director of predictive analytics at financial analytics firm S3 Partners.

Relative to other stocks, Hertz and Avis have a high likelihood of a short squeeze, according to Thomson Reuters StarMine, in which shares rise as shorts cover bearish bets.

“Over the course of the next two quarters, there are going to be positive data points coming out of the car rental names,” said Hamzah Mazari, analyst at Macquarie Research. “You are going to see guys cover their shorts which will continue to help stock performance.”