What happened
Shares of Carvana (CVNA 8.79%) rose by 100.6% in June, according to data from S&P Global Market Intelligence. The online marketplace for used cars posted double-digit percentage gains for seven of the month's 21 trading sessions, alongside two single-day price drops of 10% or more.
So what
This volatile stock moved for a variety of reasons. The month began with an upgraded credit rating on Carvana's repackaged auto loans. That was followed by management providing a boosted set of financial guidance targets, and later, the stock experienced a short-squeeze surge.
The guidance update and the higher credit rating sprang from improving business trends. The short squeeze, on the other hand, was a temporary side effect of Carvana's extreme share price volatility. The stock is still subject to massive short interest, with 68% of its shares on loan to investors betting on a downward price trend.
Now what
Carvana crashed hard in 2022 as higher interest rates and soaring used car prices limited consumers' abilities to buy vehicles. However, sales volumes are rising again, interest rates probably won't move much higher, and Carvana's long-term prospects are starting to look more reasonable. As a result, the stock has gained more than 570% from December's trough.
However, Carvana still has a rough road ahead. The novelty of its used-car vending machines is wearing off, and the company is running on a tight budget. With $6.6 billion of long-term debt balanced against just $488 million in cash reserves and $1.5 billion in vehicle inventories, Carvana needs to start generating cash profits someday soon. Until and unless it does, its unpredictable share price volatility will just be a fact of life.
I wouldn't recommend buying Carvana stock until it puts its rickety financial house in order.
