Carvana stock, heavily shorted, jumps 50% after outlook update

Carvana (CVNA) short sellers are getting squeezed. The online car retailer’s shares rallied up to 50% on Thursday after the company updated its outlook following months of aggressive cost-cutting.

The Tempe, Arizona-based company announced it expects to achieve adjusted EBITDA above $50 million in the second quarter of 2023. Earlier this year, Carvana had signaled it would reach positive adjusted earnings in Q2 but hadn’t given an exact amount.

Carvana also expects its non-GAAP total gross profit per vehicle to come in above $6,000, representing a new company record and a more than 63% improvement compared to the same quarter last year.

“The team’s persistent focus on driving profitability has resulted in significant savings and efficiencies, and this work will persist as we continue to execute our plan,” said CEO Ernie Garcia in a company statement.

Shares of the online car retailer have gained more than 300% year-to-date amid rallies reminiscent of the pandemic-era “meme craze.”

Carvana shares are heavily shorted, with short interest above 60% of the float. When it rises on the heels of a headline, short sellers who were betting that the stock will go down, are forced to cover their positions by buying the stock back. This creates what’s called a short squeeze.

The company, once a pandemic darling, laid off workers last year in an effort to cut costs and preserve cash. The used car industry, which experienced record-high inflation in 2022, has seen prices soften this year amid higher interest rates.

Carvana’s stock was crushed last year over concerns of possible bankruptcy.

Douglas Arthur, managing director at Huber Research Partners, told Yahoo Finance earlier this year, “The equity market is largely shut off, and the bond market is largely shut off, so where is the money going to come from if they run out of money?”

Despite this year’s gains, Carvana is still trading far off its closing high of $370.10 in August 2021.

Ines is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre