Carvana shares surge from record lows

Shares of Carvana jumped by as much as 32% Thursday morning – representing a small, yet notable, increase after a week of significant declines for the used car retailer.

The stock hit $10 a share during early trading but has given back some of those gains and was trading around $9.49 per share during trading mid-morning, up by 25%. The move came as the broader market surged on news of cooling inflation.

Despite the double-digit increase, the embattled stock remains off roughly 97% this year. That includes a more than 30% decline since last Thursday, when the company missed Wall Street’s top- and bottom-line expectations for the third quarter.

The missed expectations and a lackluster outlook were in addition to the used car market falling from record demand, pricing and profits during the coronavirus pandemic.

Carvana grew exponentially during the coronavirus pandemic, as shoppers shifted to online purchasing rather than visiting a dealership, with the promise of hassle-free selling and purchasing of used vehicles at a customer’s home. But analysts are concerned about the company’s liquidity, increasing debt and growth.

There was no apparent reason for Thursday’s stock increase. More than 17 million shares had traded hands as of 10:40 a.m. Thursday. That compares to a 10-day average of 27 million shares.

Carvana is one of Wall Street’s most heavily shorted stocks, with nearly 40% of shares available for trading sold short, according to FactSet.

Stocks with high short interest are likely to pop in market rallies, as investors who have bet against these companies are likely to cover their short positions by buying back borrowed stock. This can lead to what’s known as a short squeeze.

–CNBC’s Michael Bloom contributed to this report.