June 8 (Portal) – Shares of used car dealer Carvana Co (CVNA.N) ended Thursday up 56.0%, with some help from dealers who covered their bearish bets after the company cleaned one on cost concerns Earnings beat Wall Street’s expectations for the second quarter forecast cutting initiatives.
During the session, Carvana shares rose as much as 68% to $26.09, marking a more than eight-month high for the stock. Shares last traded at $24.23, with more than 173 million shares changing hands and a record-breaking trading volume.
Highly indebted Carvana said it expects adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to top $50 million for the second quarter. The company had forecast a quarterly profit in May, but only presented figures on Thursday.
That EBITDA guidance beat consensus expectations of a $6 million loss, according to Stephens analyst Daniel Imbro, who had estimated EBITDA at over $1.0 million.
The Tempe, Arizona-based company announced that non-GAAP total gross profit per unit (GPU) would exceed $6,000, a record for the company and a 63% improvement over the prior-year quarter.
While sell-side analysts were impressed by the numbers, Thursday’s move also prompted a short squeeze, which occurs when many investors are betting that a stock will fall but have to rush to cash their bets when the price goes up instead.
“The short squeeze definitely helped, but it wasn’t the main driver of price action, which was actually long buying because there were so many stocks being traded,” said Ihor Dusaniwsky, head of predictive analytics at market data provider S3 Partners. He estimated that about 47 million Carvana shares were shorted above the company’s guidance.
By Thursday’s close, short sellers in Carvana were down more than $1 billion year-to-date, compared to their $596 million year-to-date market losses on Wednesday, Dusaniwsky said.
Short sellers make bearish bets by borrowing securities for a fee and selling them immediately with the goal of buying them back at a lower price in the future, then returning them to the lender and pocketing the difference.
Carvana has reduced inventory and lowered advertising costs to get closer to profitability and generate positive free cash flow.
“We are impressed by Carvana’s ability to improve its non-GAAP operating metrics as the shift to profitability, despite sacrificing growth, has yielded benefits faster than we anticipated,” Stephens’ Imbro wrote.
Carvana had closed 2022 at $4.74. But even with Thursday’s rally, it was still well below its 2021 peak of $376.83.
Reporting by Nathan Gomes in Bengaluru and Sinéad Carew in New York. Edited by Lance Tupper, Matthew Lewis and Diane Craft
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