Is a Giant Short Squeeze Brewing in Carvana (CVNA) Stock?

  • Carvana (CVNA) carried a short interest of 58.01% as of Dec. 30.
  • S3 Partner’s Ihor Dusaniwsky believes that short sellers want CVNA stock to stay below $6 per share.
  • CVNA stock is up more than 65% year-to-date (YTD).
Carvana (CVNA stock) logo on white object in foreground as well as a high-rise building in the background
Source: Jonathan Weiss / Shutterstock.com

Carvana (NYSE:CVNA) stock closed higher by more than 40% yesterday, surprising many investors across the board. Today, the Wall Street Journal announced that the company is “quietly terminating employees” and reducing hours for current employees, according to “internal emails.” These emails also say that many operation teams are working just 30 hours or four days a week. Last year, the company laid off about 4,000 employees.

According to JXCE LLC, the used-car seller is having difficulty selling inventory. JXCE says that the average listing during the fourth quarter has remained on Carvana’s website for 97 days, compared to just 65 days during Q3. The firm also predicts that Carvana sold 86,000 cars during Q4, down more than 20% from 113,000 the same time last year.

Meanwhile, Barron’s notes that short interest as a percentage of float was a significant 58.01% as of Dec. 30. That’s equivalent to 54.1 million shares shorted and high enough to drive a short squeeze.

Is a Giant Short Squeeze Brewing in CVNA Stock?

So, what exactly explains yesterday’s move in CVNA stock to the upside of over 40%? Many would be quick to attribute it to a short squeeze, although S3 Partner’s Managing Director of Predictive Analytics Ihor Dusaniwsky certainly thinks different:

“We are seeing CVNA short sellers give up a sliver of their 2022 mark-to-market gains and are down $29.6M in January mark-to-market losses […] this includes down $43.3M on today’s 22.2% spike in its stock price […] With CVNA shorts up over $4.3B in 2022 mark-to-market profits a one-day loss of $43M would not be the trigger for a wholesale short squeeze. While some shorts may be trimming or exiting their positions the vast majority are standing pat and looking for CVNA’s stock price to stay in the $4 to $6 range we’ve seen for most of December\January.”

Dusaniwsky referenced a gain of 22.2%, so it appears that he spoke before shares traded to as high as $8. That’s above his given short seller range of between $4 and $6. Today, shares of CVNA stock are currently trading in the high $7 range.

With shares above the stated range and an already high short interest, CVNA stock seems to be the perfect target for a short squeeze, plain-old retail meme-stock buying, or a combination of both. Shareholders should except elevated volatility in the coming weeks.

On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


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