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Carvana spikes 30% to extend massive 2023 gains amid meme-style short squeeze

Vehicles are displayed at a Carvana dealership, which allows customers to buy a used car online and have it delivered or pick it up from an automated-tower, in Austin, Texas, U.S., March 9, 2017. REUTERS/Brian SnyderVehicles are displayed at a Carvana dealership in Austin

Thomson Reuters

  • Carvana shares surged 30% on Monday as the retailer extends its 2023 rally. 
  • The company holds the second-highest short interest at 59%, according to MarketWatch.
  • Traders are placing bets that the firm’s rally won’t last on looming bankruptcy concerns.

Carvana surged 30% on Monday as the online used-car retailer extends its massive 2023 rally.

Shares have soared 108% in the past month, after plunging 94% last year from rising inflation and falling used-car prices. The stock closed at $10.08 on Monday.

Short sellers are placing bets that the firm’s rally won’t last as it faces a slew of financial problems, including looming bankruptcy concerns. Additionally, Carvana stock will likely be sensitive to the Federal Reserve’s rate hike announcement later this week. 

The Arizona-based company holds the second-highest short interest at 59%, per MarketWatch, meaning that more than half of floating shares are in the hands of short sellers betting the stock will fall.

Meanwhile, Carvana is resorting to a “poison pill” strategy to deter hostile takeover attempts before the company can fix its financial issues.

But the Carvana rally is reminiscent of the meme-stock craze in 2021, when GameStop spiked 134% in a concerted effort by retail traders on Reddit to raise the value of the video game retailer’s stock. 

That created a so-called short squeeze in which retail traders target a stock with high short interest. Their coordinated purchases push a stock up, forcing short sellers to close their positions by buying the stock they’re betting against, adding further fuel to a rally.

Read the original article on Business Insider