Investment management firm Kerrisdale Capital said on Monday, June 12; it has taken a short position in the stock of used-car retailer Carvana (NYSE: CVNA), sending its shares down at the market open, before witnessing a sharp recovery of more than 8%.
“Carvana is insolvent, its equity is worthless. Nothing more than a poorly run auto retailer, the company will never generate sustainable positive cash flow until its debt is equitized.”
– Kerrisdale wrote in a tweet announcing its short position.
We are short $CVNA. Report avail at https://t.co/NUoouZxEfz. Carvana is insolvent, its equity is worthless. Nothing more than a poorly run auto retailer, the company will never generate sustainable positive cash flow until its debt is equitized (1/9)
— Kerrisdale Capital (@KerrisdaleCap) June 12, 2023
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In a long Twitter thread, the investment firm continued to explain its bearish views on CVNA, claiming the company “has never produced profitable growth.”
“Even during the pandemic when demand soared, interest rates were low, and used car prices were mooning, $CVNA couldn’t generate consistent profits – now none of those conditions exist.”
– Kerrisdale added.
Carvana’s liquidity outlook
In addition, the investor expects Carvana’s liquidity to drain even further and face more than $250 million in interest payments in Q4, which is also its “seasonally slowest period,” the fund added.
Kerrisdale’s short report comes just days after Carvana said it expects its Q2 financial results to beat its earlier forecasts, propelling its shares up by a whopping 56% during the trading session on June 8.
Carvana stock price analysis
At press time, shares of Carvana were changing hands at $20.61, up 8.08% on the day. The stock initially dipped to $18.5 following Kerrisdale’s announcement before staging a strong rebound.
CVNA surged more than 73% over the past month and is up by a mouthwatering 328.7% since the start of the year, driven by successful cost-cutting measures, record-breaking Q1 revenue, and upbeat guidance.
The company’s meteoric stock market rise has left short-sellers sitting at more than $1 billion in combined losses in 2023.
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