As Carvana has continued its surprising turnaround, short sellers were left sitting on massive losses after the company’s 50% surge on Thursday.
The stock was more volatile in Friday’s trading, rising as much as 12% and then dropping 5% in morning trading. The fall Friday however will not do much to blunt the shocking losses the short sellers endured in Thursday’s 56% rally which pushed the losses for short contracts higher.
In an interview, Ihor Dusaniwsky of S3 Partners noted, “[Carvana] shorts have now topped the [billion dollar] mark in year-to-date, mark-to-market losses, down $1.037 billion in mark-to-market losses for the year.”
According to data gathered by S3 Partners, Caravana was heavily shorted, with short interest at 55.66% of the float. After the movement Thursday, which surpassed 60% during the session at one point, short sellers had as much as $440 million in mark to market losses.
Carvana shares had surged following word the company is now forecasting an adjusted EBITDA of over $50 million in the second quarter. The company had indicated it expected to achieve positive adjusted earnings in Q2, but it had not specified exactly what it expected that number would look like.
In a release, Ernie Garcia, Carvana founder and CEO, said, “Our record-breaking 2023 first quarter is evidence that our strategy is working, and our updated Q2 2023 outlook demonstrates that our progress continues to positively impact the business even faster than expected.”
After being crushed in 2022, falling 98% at one point as Wall Street worried the company was heading into bankruptcy, Carvana announced cost-cutting measures it would be implementing to preserve cash.
So far this year, shares of the company are up 425%, as the stock rallies in ways some analysts are likening to the pandemic-era “meme craze.”
Dusaniwsky noted that some of Thursday’s action could have been due to shorts covering after getting caught unawares as the company signaled on profits. However he said the majority of the movement into the stock was due to traders looking to go long on the stock based on its new outlook, and not shorts covering losses.
Dusaniwsky said, “We should expect more buy-to-covers over the next few days if this price level holds, as not many short sellers can remain short a stock with a -79% June month-to-date return. There should be a few taps on the shoulders from chief risk officers to trim or exit CVNA short positions.”
