From Near Bankruptcy to 1,000% Surge

Carvana (CVNA) short sellers have lost more than $2 billion this year as the online car retailer's stock has rallied more than 1000% year to date, data from analytics firm S3 Partners showed.

On Wednesday, the stock gained 40% on Wednesday to close at $55.80 after the company announced a debt exchange deal and released its second quarter results. At its lows in late 2022, Carvana stock was trading below $4.

“The CVNA short squeeze is going to tighten even more with [Wednesday's] upward price action,” Ihor Dusaniwsky, managing partner at S3 Partners, told Yahoo Finance on Wednesday morning.

“Expect more short covering today and over the next few days as short sellers look for exit points to trim their exposure in a very unprofitable trade.”

Short sellers lost approximately $646 million in Wednesday's rally. Their mark-to-market losses since the start of 2023 are approximately $2.18 billion, according to S3's data.

The stock's daily rallies this year have been reminiscent of the pandemic-era “meme craze,” which was filled with short squeezes as traders targeted stocks heavily bet against by investors, which forced short sellers to cover positions and pushed prices higher.

Short interest in Carvana sits at 47% of the outstanding float, an enormously high level compared to the rest of the market, S3's data showed.

Still, even with this year's massive move the stock is more than 85% below its record closing high of $370.10 reached in August 2021.

The company, once a pandemic darling, laid off workers last year in an effort to cut costs and preserve cash. Shares reached a 52-week low of $3.55 in December 2022 amid speculation of bankruptcy.

JPMorgan analysts recently downgraded the stock to Underweight citing a “valuation [that] has once again disconnected materially from fundamentals.”


Originally published on Yahoo.com

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