What happened
Shares of Carvana (CVNA -0.36%) were gaining today as the stock seemed to respond along with other growth stocks to a deal to raise the debt ceiling. Carvana also launched a new national ad campaign over the weekend, showing the company beginning to invest in its growth after sharply cutting back on spending to cut its losses.
The stock was up 8.9% as of 11:34 a.m. ET.
So what
Carvana said yesterday it was launching a new national ad campaign, focusing on five-star reviews from happy customers, a move that shows the company is going on offense again after cutting back on spending to improve its bottom line.
The company said in its first-quarter earnings report that it expected to reach adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profitability in the current quarter, and the new campaign could be a sign that it is well on its way to achieving that goal.
Growth stocks also seem to be responding to the debt-ceiling deal that was reached over the weekend to avert a U.S. default and an economic catastrophe. Treasury yields came down on the news, which favors companies like Carvana, as car buyers are sensitive to interest rates. Carvana itself has high interest expenses, and lower rates could help lower its interest payments.
A short squeeze could also be helping to lift Carvana stock, as nearly 70% of the stock is sold short, and today's volume had already exceeded the three-month average before noon, a sign short sellers could be buying back stock.
Now what
Carvana got a bullish note last week from Wedbush, as analyst Seth Basham said the asset-backed security market is improving, which could push the company's EBITDA "materially higher" in the second quarter.
The online used car dealer still faces a lot of risk, but the business seems to be heading in the right direction following better-than-expected first-quarter results. If Carvana can return to growth and improve its bottom line, the stock has a lot of upside potential.
