What happened
Shares of Carvana (CVNA +3.06%) were surging for the second session in a row as a short squeeze in the aftermath of last Thursday's earnings report seemed to carry the stock higher again.
Carvana stock closed up 26.1% on Monday, building on momentum from last Friday.
NYSE: CVNA
Key Data Points
So what
Carvana, the online used car dealer whose stock crashed last year on bankruptcy concerns, impressed investors in its first-quarter earnings report as the company took meaningful cost-cutting steps and showed a path to profitability, though it's still operating at a loss.
As a result, the stock jumped 24% on Friday and added another 26% as an extended short squeeze seemed to help the post-earnings momentum continue.
As of mid-April, 70% of Carvana's float was sold short, meaning most investors were betting on it to fall.
That set the stock up for a short squeeze on good news as 50 million shares changed hands today, more than half of the shares outstanding and more than triple its daily average volume over the last three months.
Now what
The high percentage of shares sold short gives Carvana more room to run, especially as the company expects profitability to continue to improve in Q2, forecasting positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
In Q1, revenue fell 25% as the company scaled back on inventory, but it narrowed its adjusted EBITDA margin from -10% to just -0.9%, a clear sign of progress.
Carvana still has a lot of work to do to get on a long-term path to profitability, but the stock has a lot of upside potential if it can get there.
