Shares of Carvana (CVNA -2.16%) have bucked the broader market trend this week, rising 20.4% from where they closed last Friday, according to data from S&P Global Market Intelligence. The S&P 500 is up only 2.2% over the same time frame.
There was no real good reason for the online car dealer to see such a strong response, especially since its license to operate in Illinois was suspended again -- not the first run-in with regulators Carvana has had. It's had similar experiences in Pennsylvania, Michigan, and North Carolina.
Not being able to sell cars in a particular market is kind of a big thing for a car dealer, and its stock was appropriately walloped as a result (though it did recover and eventually eke out a gain for the day), but the very next day Carvana's shares were off to the races again, surging 20% in one day.
There was no company-specific news to account for the jump, but Carvana's stock is one of the most heavily shorted issues, with The Fly recently reporting its estimated short interest stood at over 40%. That could rally meme stock traders who favor companies with big bets against them. By piling into the stocks and buying up their shares, they hope to trigger a short squeeze, which would bid their prices up even higher as short-sellers raced to cover their positions.
Aside from run-ins with regulators, Carvana is facing other pressures as well, including elevated gas prices, inflation, rising interest rates, and high new and used car prices. An ongoing supply chain crisis that makes critical components for cars difficult to obtain also adds to the list of industry woes and has led many auto manufacturers to ship cars to dealers without computer chips for non-safety-related amenities.
Carvana may also be having trouble securitizing its subprime loans on the market, if a noted short-seller is to be believed. LevFin Insights contends it hasn't sold any such loans on the public markets this year, which could indicate the car dealership is having difficulty finding buyers.
The steady drip of negative news about Carvana and the auto industry generally has seen the e-commerce company's stock price crater in 2022. Shares are down 88% this year and sit 93% below their 52-week highs.