What's Going On With Carvana Stock?

Stock prices, in theory, are tied to how well a company is doing. You make money, your stock goes up; you lose it, your share price goes down. So why has stock in Carvana, a company with negative earnings per share, climbed nearly 500 percent recently? Well, there are two possible answers. I’ll throw my business degree hat on and explain both.

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The first, and the simplest, is that Carvana stock prices jumped because the company announced it was going to beat its own second-quarter earnings estimates. Carvana claims to have slashed spending recently, and announced last week that those efforts paid off — its earnings before interest, tax, depreciation, and amortization (EBITDA) are expected to be in excess of $50 million for Q2. After all those qualifiers, the numbers are sure to be lower, but they may be out of the red.

That announcement lines up with the biggest jump in Carvana’s share price, a jump from $15.54 to $24.25 last Thursday, and it would be oh so simple if that was the outright cause. Yet, analysts still call the stock overvalued, there are as many indicators saying to sell the stock as there are saying to buy it. Sure, stocks as a whole are trending upwards based on expectations surrounding interest rates, but is Carvana’s share price really based on its actual financials?

It may not be, if you believe the claimed trades of retail investors on Reddit. If you remember r/WallStreetBets from the GameStop stock festivities of 2021, you’ll know that its users love a short squeeze — an unusual market situation that guarantees demand for a stock, allowing those who hold it to set exorbitant prices. Essentially, a stock is “shorted” when it’s borrowed at a high price and sold, with the intent to pay back the loan with an equal number of shares purchased after the price drops, allowing the borrower to reap the drop in cost as profit.

Shares that are shorted are on loan from other investors (or from the company itself), so a high volume of shorted shares means a large market who needs shares to pay back their loans — when those come due, they’ll pay any amount for the shares needed to settle up. That spike in sale prices, right as lenders come knocking, is the squeeze. The r/WallStreetBets subreddit seems to have noticed that Carvana has a high short volume, and it appears some folks over there are buying up shares in hopes of that exact situation.

In the end, strong Q2 financials are a more likely bet for Carvana’s stock surge than any kind of GameStop-style short squeeze. But, as with any stock, people are approaching it from all angles — bullish, bearish, trying any angle they can to make a quick buck.