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Why Carvana's Stock Is Soaring 10% Today

By Rich Duprey - Updated May 5, 2020 at 4:01PM

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The used car dealer is about to report earnings tomorrow after the market close.

What happened

Shares of Carvana (CVNA -10.13%) are soaring 10% in late-day trading on no discernible news specific to the online used car dealer, but it is scheduled to report first-quarter earnings after the market closes.

So what

The auto industry has been slammed by the coronavirus pandemic. The 53% in April was the worst decline in decades, but it wasn't as bad as analysts had predicted. On top of that, used car prices fell 12%, also a historic fall.

A car being delivered by Carvana

Image source: Carvana.

However, retail used car prices have remained relatively stable, down only 1% from pre-COVID-19 levels, according to data from Cox Automotive, so Carvana might not be affected as much as some may have expected.

Moreover, the online used car dealer is an auto stock loved by market bears, with 23 million shares, or 37% of its float sold short. A whiff of potential good news could send Carvana's stock higher as short-sellers rush to cover their positions.

Now what

Still, there's a good possibility Carvana's earnings report might not be as positive as some hope because there are 30 million people unemployed, more than a few of whom will be holding off on buying a car, new or used.

Even last quarter, before the pandemic struck, the company's sales fell short, and now with the pandemic fully upon us, Carvana could be driving toward another quarter of disappointment.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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