Heavily shorted Carvana stock jumps 50% after outlook update

Carvana (CVNA) short sellers are in a hurry. Shares of the online auto retailer soared as much as 50% on Thursday after the company updated its outlook following months of aggressive cost-cutting.

The Tempe, Arizona-based company announced that it expects to achieve adjusted EBITDA in excess of $50 million in the second quarter of 2023. Earlier this year, Carvana reported that it would achieve positive adjusted earnings in second quarter, but had not given an exact amount.

Carvana also expects its total non-GAAP gross profit per vehicle to exceed $6,000, which is a new record for the company and an improvement of more than 63% over the same quarter last year. .

“The team’s continued focus on profitability has resulted in significant cost savings and efficiencies, and this work will continue as we continue to execute on our plan,” CEO Ernie Garcia said in a statement. the society.

Shares of the online car retailer have gained more than 300% since the start of the year amid rallies reminiscent of the “meme craze” of the pandemic era.

Carvana shares are heavily shorted, with short interest hovering around 65% of free float. When it rises on the heels of a headline, short sellers who were betting that the stock would go down are forced to cover their positions by buying back the stock. This creates what is called a short compression.

The company, once a pandemic darling, laid off workers last year in a bid to cut costs and preserve cash. The used car industry, which saw record inflation in 2022, has seen prices fall this year amid higher interest rates.

Carvana shares were crushed last year over fears of possible bankruptcy.

Douglas Arthur, managing director of Huber Research Partners, told Yahoo Finance earlier this year: “The stock market is largely closed, and the bond market is largely closed, so where will the money come from? ‘they lack money?

Despite this year’s gains, Carvana is still trading far from its August 2021 closing high of $370.10.

Carvana shares jumped after the online car retailer's outlook for the second quarter.  REUTERS/Brian Snyder

Carvana shares jumped after the online car retailer’s outlook for the second quarter. REUTERS/Brian Snyder

Ines is a senior economics reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre

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