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.
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.
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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