Carvana Co. (NYSE: CVNA) experienced a remarkable surge in its stock price during the month of June. According to data from S&P Global Market Intelligence, Carvana shares rose by over 100%. The online used car marketplace witnessed significant gains on seven trading sessions, while also enduring two single-day drops of 10% or more.
Factors Behind Carvana’s Stock Price Volatility
The stock’s volatility can be attributed to several factors that influenced its movement. The month began with Carvana receiving an upgraded credit rating for its repackaged auto loans. This positive development was followed by the company’s management setting higher financial guidance targets, which further boosted investor confidence. In addition, a short-squeeze frenzy temporarily drove up the stock’s value due to Carvana’s extreme price fluctuations.
It’s worth mentioning here that a substantial portion of the stock is still subject to significant short interest, with 68% of shares loaned to investors who anticipate a decline in prices.
Carvana endured a severe setback in 2022 due to higher interest rates and surging used car prices, limiting consumers’ purchasing power. However, the tide seems to be turning as sales volumes are on the rise once again, and interest rates are not expected to increase significantly. Consequently, Carvana’s long-term prospects are appearing more favorable, leading to an impressive 570% surge from its December lows.
Nevertheless, Carvana still faces obstacles on its path to success. The initial novelty of its used-car vending machines is wearing off, and the company continues to operate on a tight budget. Carvana currently holds a long-term debt of $6.6 billion, with cash reserves of just $488 million and vehicle inventories valued at $1.5 billion. It is imperative for the company to generate cash profits in the near future. Until then, the unpredictable share price volatility of Carvana will remain a constant challenge for the company.
Edward Cooke is a financial analyst, freelance writer, and editor. He has six years of experience in financial journalism. He has an in-depth understanding of equities markets, tracking major indices and providing real-time analysis on stock price movements, corporate earnings, and market sentiment.
