On Friday, negative investors were surprised by Carvana Co.’s (CVNA.N) second-quarter earnings prediction, sending its shares up 55%.
Carvana struggled in 2022 to sell secondhand automobiles bought at greater costs during the epidemic, owing to affordability worries.
According to Ortex, Carvana short sellers lost $142 million when the company started trading higher after-hours on Thursday. Short holdings were $488 million.
“Some short sellers will add to the buying pressure as they try to close their positions and, therefore, causing a short squeeze,” Ortex co-founder Peter Hillerberg said.
On Thursday, Carvana said its second-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) would be positive, calming investors.
Carvana, famed for its auto vending machines, has trimmed expenses and is renegotiating its debt, which was used to acquire ADESA’s U.S. physical auction company.
Analysts were wary.
“This stock isn’t for the faint of heart, given ongoing solvency concerns and a very real risk of macro deterioration,” Piper Sandler analysts said on Friday, raising their price objective by $1 to $21.
CVNA must return to profitable growth to turn constructive. “Given the company’s history and what we believe is going to be a challenging used car supply environment in the medium-term, this is uncharted territory,” J.P. Morgan analyst Rajat Gupta said.
Retail investors have boosted Carvana shares by 52% this year after they lost 98% last year.
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