What happened
Shares of Carvana (CVNA 2.11%) were moving higher for the third day in a row after the company delivered better-than-expected results in its first-quarter earnings report last week, which kicked off a short squeeze that appears to be continuing.
The stock has also attracted some interest from the meme investing community in the past and that could be happening again given volume remained unusually high.
After gaining 24% last Friday and 26% on Monday, shares of the online used-car dealer were up 4.5% as of 1:40 p.m. ET, though they rose as much as 17% earlier in the session, showing volatility in the stock continues.
So what
Roughly 40 million shares of Carvana had changed hands as of 1:40 p.m. ET, nearly triple its trading volume over the last three months, a sign that short-sellers may be being squeezed; 69% of the float was sold short as of mid-April.
Additionally, that high volume and volatility could be a sign that day traders are seeking to take advantage of the movement in the stock. Shares have been highly volatile for the last several months after they plunged over concerns about a potential bankruptcy following a sharp slowdown in sales growth, wide losses, falling used-car prices, and higher interest rates.
Now what
Carvana's first-quarter earnings report helped restore some investor confidence. Management sharply narrowed its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin from negative 10% to just negative 0.9%. The company is targeting positive adjusted EBITDA margins in Q2.
While management has more work to do to get to GAAP and free-cash-flow profitability, the business is headed in the right direction after the first-quarter report, and bankruptcy looks like much less of a risk.
Expect the volatility in the stock to continue because there's still a lot of upside potential if management can execute on the turnaround.
