Published - July 20th, 2023 @ 11:56 AM (GMT+2)

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Carvana's Stock Rebound:
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In a remarkable display of financial resilience, Carvana (NYSE:CVNA) has seen a dramatic rebound in its stock value in 2023, causing short sellers to suffer losses exceeding $2 billion, according to S3 Partners' analytics. The online car retailer's stock skyrocketed more than 1000% this year, causing a significant squeeze on short sellers.

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Wednesday marked a significant day as the stock soared 40% to close at $55.80, a massive leap from its late 2022 trough when it was trading below $4.

This substantial uptick was due to two critical events; the company revealed a debt exchange deal and declared its Q2 results. 

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Predictions on Short Selling:
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Ihor Dusaniwsky, managing partner at S3 Partners, voiced that the CVNA short squeeze would intensify following Wednesday's bullish trend. The anticipated short covering in the following days could prompt sellers to mitigate their exposure in this unfavorable trade.

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Short sellers bore losses of roughly $646 million amid Wednesday's rally, taking the mark-to-market losses since the onset of 2023 to approximately $2.18 billion. Interestingly, the stock's daily rallies this year echo the "meme craze" witnessed during the pandemic. The heavy betting against these stocks led short sellers to cover positions, subsequently escalating prices. Current short interest in Carvana is 47% of the outstanding float, markedly high compared to the rest of the market.

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Carvana's Struggles and Recovery: 
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Despite this monumental surge, Carvana's stock remains 85% below its record closing high of $370.10 in August 2021. The company had to lay off employees to preserve cash and reduce costs. The stock plunged to a 52-week low of $3.55 in December 2022 amid bankruptcy rumors. JPMorgan analysts have recently downgraded the stock to Underweight, implying a significant disparity between valuation and fundamentals.

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Carvana's recent rally was further propelled by announcing a debt exchange deal and quarterly results surpassing analyst expectations. By replacing existing unsecured debt with new notes, the company is projected to cut its outstanding debt by over $1.2 billion and reduce annual interest expense by $430 million for the next two years. An additional provision to sell up to $350 million in new stock forms part of this restructuring.

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Financial Results and Future Plans: 
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The quarterly report showed revenue of $2.96 billion and adjusted EBITDA of $155 million, both outperforming predictions. Although vehicle unit sales were slightly below estimates, Carvana's loss per share shrank to $0.55, considerably better than the $1.18 anticipated and a significant reduction from the $2.35 loss per share reported in the same quarter last year.

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