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Carvana stock rockets over 1,000% amid powerful short squeeze

Carvana stock rockets over 1,000% amid powerful short squeeze

In 2023, Carvana (NYSE: CVNA), the online used car retailer, experienced an extraordinary surge in its stock price, witnessing a meteoric rise driven by an intense short squeeze phenomenon. 

The unprecedented rally bore striking resemblances to the meme-stock frenzy that captivated markets in 2021, leaving investors and analysts astounded by the company’s rapid ascent.

The company’s shares skyrocketed more than 1,000% since the start of the year, making it the top-performing stock among those with a market cap above $5 billion. 

CVNA YTD gains. Source: TradingView

What is driving CVNA’s exceptional rally?

Carvana’s remarkable stock market resurgence in the current year can be primarily attributed to a “short squeeze” phenomenon. 

This unique occurrence arises when a sudden surge in buying activity compels short sellers to close their positions. Short sellers typically wager on a stock’s decline by borrowing shares and selling them, aiming to buy them back later at a lower price. 

However, as the stock’s price begins to climb, short sellers rush to repurchase shares to minimize their losses, fueling a surge in demand that further propels the stock price upwards.

Short sellers lost over $2 billion due to CVNA 2023 rally

The occurrence of such a strong short squeeze means there was a considerable level of short interest in CVNA. To be more specific, short interest in the car retailer currently sits at almost 50% of the outstanding float, which represents an extremely high level compared to the rest of the market.

Those who have shorted CVNA this year have lost over $2 billion as the stock skyrocketed nearly 1,100% since the beginning of the year, $646 million of which were lost solely after the company’s 40% surge on July 19. 

CVNA stock price analysis

At the time of publication, shares of Carvana were standing at $55.80, up 40.20% in the past 24 hours. 

CVNA 1-day price chart. Source: Finbold

The most recent rally was fueled by the company’s major deal with noteholders, through which Carvana hopes to eliminate more than $1.2 billion of its debt. Furthermore, Carvana also reported better-than-expected Q2 earnings on Wednesday, raking in $2.97 billion in revenue, well above the expected $2.6 billion. 

Over the past month, CVNA exploded around 105%, while its year-to-date gains stand at over 1,060%. 

The 2023 rally marks a remarkable rebound for the company that announced layoffs last year in order to cut costs and preserve cash after its shares hit a 52-week low of $3.55 in December 2022 amid bankruptcy risks. 

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