Carvana’s (CVNA) stock was halted for volatility on Wednesday morning as it rose 27% before retreating.
Shares of the online car retailer, which is at risk of bankruptcy, have gained more than 200% year-to-date amid a recent rally reminiscent of the pandemic-era “meme craze.”
Carvana’s stock is heavily shorted, with short interest hovering around 67% of the float. Short sellers have been betting that the unprofitable company’s share price will go down. But when it rises, they are forced to cover their positions by buying the stock back. This creates what’s called a short squeeze.
“CVNA’s price move has made it one of the most squeezable stocks in the U.S.,” S3’s Ihor Dusaniwsky recently told Yahoo Finance. Last Thursday the stock surged as much as 33% in one session.
Carvana, once a pandemic darling, laid off workers last year in an effort to cut costs and preserve cash. The company is expected to report quarterly results on February 23.
“Based on my fourth quarter expectations, I expect them [Carvana] to lose $2 billion in 2022 on the bottom line,” Douglas Arthur, managing director at Huber Research Partners, recently told Yahoo Finance.
“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?,” said the analyst, who has a Sell rating on the stock.
Despite this year’s gains, Carvana is still trading far off its closing high of $370.10 in August 2021.
On Wednesday afternoon, the stock was hovering around $14.50 per share.
Ines is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre
Click here for the latest trending stock tickers of the Yahoo Finance platform
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for Apple or Android
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube
Source: https://finance.yahoo.com/news/carvana-stock-heavily-shorted-spikes-as-much-as-27-182245683.html