What happened

Shares of Carvana (CVNA) surged last month, as the high-flying disruptive car dealer overcome a disappointing earnings report and got a boost from an apparent short squeeze in the second half of the month. According to data from S&P Global Market Intelligence, the stock finished November up 18%.

The stock dipped following its Nov. 6 earnings but then gained consistently through the second half of the month.

CVNA Chart

CVNA data by YCharts

So what

Carvana posted another strong round of top-line growth in the third quarter, with revenue surging 105% to $1.1 billion, marking its 23rd consecutive quarter of triple-digit revenue growth and beating estimates at $997 million. Its used-car buying program also took off, as vehicles purchased from customers rose 249% in the quarter. 

A Carvana vending machine

Image source: Carvana.

The company raised its full-year guidance for revenue, units sold, and gross profit per unit. However, with its market cap now near $14 billion and market sentiment shifting, profitability is becoming more important to investors, yet Carvana's loss widened again in the quarter. It posted a per-share loss of $0.56, compared with $0.40 a year ago and worse than expectations at $0.39, adding to concerns about its ability to turn profitable.

The stock dropped 7.5% on Nov. 7, after the report came out.

Nonetheless, the stock returned to growth a week later. There was no specific news out on the company; rather, a short squeeze seemed to take hold, as the stock gained for 11 sessions in a row.

Fifty-two percent of the stock is sold short, and its short interest ratio, or the number of days it would take to cover all of those short bets at an average trading volume, is 11. The stock has been a popular short bet because of its high valuation and profitability concerns, but the shorts have been roasted this year, as the stock has nearly tripled year to date.

Now what

Carvana shares have fallen over the first two sessions in December, so it seems as if the recent short squeeze is over. While the stock's valuation and widening losses explain the high short percentage, it also seems like a mistake to bet against a stock that has doubled sales every quarter for nearly six years. 

At this point, Carvana seems like it's due for a breather, as shares are up an incredible 728% since its 2017 IPO, but unless its sales growth suddenly slows significantly, I wouldn't expect the stock to fall.