$CVNA A Pure Short Squeeze Play
Carvana Co. (NYSE: CVNA) is an e-commerce platform for buying and selling used cars. Through its platform and impressive features, CVNA was able to disrupt the used car market – especially at the height of the pandemic when the used car market was at its peak. However, CVNA has been struggling lately given the rising interest rates that affected consumers’ ability to purchase used cars. Meanwhile, the used car market is witnessing a correction that has brought prices down significantly from its pandemic peak. While the company faces the risk of filing for bankruptcy, CVNA stock is witnessing a short squeeze that has sent the stock up more than 192% YTD. Considering the stock’s rapidly increasing short interest, CVNA stock is one to watch closely as it could further soar over the coming weeks.
CVNA Fundamentals
By disrupting the used car market, CVNA has caught investors’ attention thanks to its potential in capturing a major share of that market. While the stock dipped significantly during the Covid crash to below $30, the high demand for used cars sent CVNA soaring to more than $370 in August 2021. Given that the used car market was soaring at that time, CVNA aggressively pursued further growth and invested substantial amounts of cash to increase its inventory.
In addition, CVNA looked to expand its business and acquired ADSEA’s US physical auction business for $2.2 billion in cash and pledged $1 billion for improvements across ADSEA’s 56 locations. To fund this acquisition, CVNA issued 15.6 million shares at $80 per share for net proceeds of $1.2 billion. At the same time, CVNA issued $3.2 billion in 10.25% senior unsecured notes due in 2030.
While these actions could have helped the company achieve more growth, CVNA was hit hard by the Fed’s interest rate hikes to curb rampant inflation. Based on the Fed’s decisions, the once soaring demand for used cars took a massive hit as the rising interest rates impacted consumers’ ability to purchase used cars. Meanwhile, the supply chain constraints that affected vehicle manufacturers slightly eased – leading new car prices to drop. In light of these circumstances, prices of used cars significantly dropped from their Covid highs – leaving CVNA with expensive inventory and low demand for its vehicles. As a result, CVNA stock tumbled 98% in 2022.
Given these conditions, CVNA struggled in 2022 with declining profit margins and widening net losses. These losses were not helpful for the company given its heavy debt load of nearly $7 billion. With this in mind, CVNA’s debt is impacted by the Fed rate hikes since it includes variable rate debt from its credit facilities. Considering the company’s mounting debt and financial woes, many investors have been speculating that a bankruptcy filing could be in the mix for CVNA this year.
Considering these fears, CVNA has been working to improve its financial position. In 2022, CVNA reduced its workforce by nearly 4000 employees. CVNA has also taken additional measures including reduced work hours in an attempt to navigate through weak sales. In that way, CVNA believes it could reduce its costs enough to weather the current macro environment.
Moreover, CVNA has been looking to improve its liquidity situation as the company agreed with Ally Bank and Ally Financial to sell up to $4 billion of auto loans. On that note, the deal involves receivables sold beginning January 13 and does not include receivables sold before that date. By selling its loans, CVNA would now be able to receive a new source of funding to help the company restructure its operations amid its mounting debt and unsustainable cash burn rate.
Meanwhile, CVNA is attempting to capitalize on its increasing net losses by introducing a tax asset preservation plan designed to protect long-term shareholders’ value by preserving the availability of its net operating loss carryforwards (NOLs). Since the company has significant NOLs that could offset its future federal taxable income, CVNA adopted this plan to limit its 5% shareholders from increasing their ownership stakes to preserve these NOLs. Under this plan, if a 5% shareholder increases their ownership by more than 50 percentage points over a rolling three-year period, all shareholders will be entitled to acquire shares at a 50% discount. In this way, a change in ownership may not occur – preserving the NOLs for the future.
Despite the company’s financial woes, CVNA stock is trending among investors thanks to its short squeeze potential. With this in mind, a short squeeze appears to be underway for CVNA stock as the stock soared more than 192% YTD. It is worth noting that CVNA stock is highly shorted with a short interest rate of 68.3% and 80.7% of its float is on loan according to Ortex data. In light of this, CVNA stock could be an intriguing investment in the short term to capitalize on its price movements. With the company preparing to release its annual report on February 23, CVNA stock could be poised to soar if it shares positive guidance for 2023.
CVNA Financials
According to its Q3 report, CVNA has $9.6 billion in assets – including $316 million in cash and $161 million in restricted cash. CVNA also reported $2.5 billion in vehicle inventory – declining from $3.1 billion at the beginning of the year. This decline in inventory could be attributed to CVNA selling inventory at lower prices to boost its sales. Meanwhile, CVNA has $9.2 billion in liabilities where $1.8 billion are current liabilities. CVNA also has $6.6 billion in long-term debt increasing from $3.2 billion at the beginning of 2022 which is mainly due to its acquisition of ADSEA.
In terms of revenues, CVNA reported a YOY decline to $3.3 billion compared to $3.4 billion. Despite this, the company has improved its revenues for the 9 months period from $9 billion in 2021 to $10.7 billion. As for the cost of sales, CVNA reported $3 billion in Q3 compared to $2.9 billion a year ago. However, the cost of sales increased significantly for the 9 months period to $9.7 billion from $7.6 billion in 2021. This increase is mainly attributed to CVNA purchasing its inventory at high prices during the market’s peak and selling them at lower prices to boost its sales.
In light of this, CVNA’s gross profit declined to $359 million in Q3 compared to $523 million in the same year-ago period. Given the company’s declining profit margins, CVNA’s net loss widened to $508 million compared to $68 million last year. In total, CVNA reported a net loss of $1.4 billion for the 9 months period compared to $105 million a year ago.
Technical Analysis
CVNA stock is currently trading at $13.56 and has supports near 12.80, 9.54, and 6.37. The stock also shows resistances near 17.12, 19.81, and 24.50. Despite the risks regarding the company’s future, CVNA soared more than 192% YTD which could be attributed to the short squeeze the stock is witnessing. With this in mind, CVNA is one of the most shorted stocks which could allow the stock to further run over the coming weeks thanks to the stock’s increasing momentum. Given that the company intends to post its annual report on February 23, CVNA stock has the potential to soar if the company shares positive guidance for 2023.
After recently breaking through its resistance, CVNA appears to be primed to run especially with its run in after-market trading where the stock reached $16.87. With that in mind, CVNA is gaining momentum thanks to its short squeeze which could see the stock break through its resistance near $17.12 with strong buying activity. However, if the stock fails to break through that resistance, bullish investors could wait for a pullback near $12.8 to enter their positions in CVNA stock to capitalize on its ongoing short squeeze.
Considering the CVNA’s short squeeze potential, accumulation is trending upwards and the MACD is bullish to the upside. Meanwhile, the RSI cooled down from 87 to 79 indicating that CVNA is overbought. However, with the stock gaining momentum as a short squeeze play, CVNA has the potential to continue its impressive run over the coming weeks. CVNA has an OS of 105.9 million and a float of 84.9 million.
CVNA Forecast
With the stock witnessing a short squeeze that sent the stock soaring 120% YTD, CVNA stock could be one to watch closely as it could further run given its short data. Despite its short-term potential as a short squeeze play, CVNA is a risky investment as filing for bankruptcy is a possibility for the company thanks to its mounting debt load. While the company is working to reduce its costs in the coming quarters, such reductions could fail to achieve the company’s financial targets. With nearly $7 billion in long-term debt, a high cash burn rate, and widening net losses, CVNA stock may not be worth the risk for long-term investors. However, the stock’s meme status and high short interest could make it a profitable trade in the short term.
CVNA Fundamentals
By disrupting the used car market, CVNA has caught investors’ attention thanks to its potential in capturing a major share of that market. While the stock dipped significantly during the Covid crash to below $30, the high demand for used cars sent CVNA soaring to more than $370 in August 2021. Given that the used car market was soaring at that time, CVNA aggressively pursued further growth and invested substantial amounts of cash to increase its inventory.
In addition, CVNA looked to expand its business and acquired ADSEA’s US physical auction business for $2.2 billion in cash and pledged $1 billion for improvements across ADSEA’s 56 locations. To fund this acquisition, CVNA issued 15.6 million shares at $80 per share for net proceeds of $1.2 billion. At the same time, CVNA issued $3.2 billion in 10.25% senior unsecured notes due in 2030.
While these actions could have helped the company achieve more growth, CVNA was hit hard by the Fed’s interest rate hikes to curb rampant inflation. Based on the Fed’s decisions, the once soaring demand for used cars took a massive hit as the rising interest rates impacted consumers’ ability to purchase used cars. Meanwhile, the supply chain constraints that affected vehicle manufacturers slightly eased – leading new car prices to drop. In light of these circumstances, prices of used cars significantly dropped from their Covid highs – leaving CVNA with expensive inventory and low demand for its vehicles. As a result, CVNA stock tumbled 98% in 2022.
Given these conditions, CVNA struggled in 2022 with declining profit margins and widening net losses. These losses were not helpful for the company given its heavy debt load of nearly $7 billion. With this in mind, CVNA’s debt is impacted by the Fed rate hikes since it includes variable rate debt from its credit facilities. Considering the company’s mounting debt and financial woes, many investors have been speculating that a bankruptcy filing could be in the mix for CVNA this year.
Considering these fears, CVNA has been working to improve its financial position. In 2022, CVNA reduced its workforce by nearly 4000 employees. CVNA has also taken additional measures including reduced work hours in an attempt to navigate through weak sales. In that way, CVNA believes it could reduce its costs enough to weather the current macro environment.
Moreover, CVNA has been looking to improve its liquidity situation as the company agreed with Ally Bank and Ally Financial to sell up to $4 billion of auto loans. On that note, the deal involves receivables sold beginning January 13 and does not include receivables sold before that date. By selling its loans, CVNA would now be able to receive a new source of funding to help the company restructure its operations amid its mounting debt and unsustainable cash burn rate.
Meanwhile, CVNA is attempting to capitalize on its increasing net losses by introducing a tax asset preservation plan designed to protect long-term shareholders’ value by preserving the availability of its net operating loss carryforwards (NOLs). Since the company has significant NOLs that could offset its future federal taxable income, CVNA adopted this plan to limit its 5% shareholders from increasing their ownership stakes to preserve these NOLs. Under this plan, if a 5% shareholder increases their ownership by more than 50 percentage points over a rolling three-year period, all shareholders will be entitled to acquire shares at a 50% discount. In this way, a change in ownership may not occur – preserving the NOLs for the future.
Despite the company’s financial woes, CVNA stock is trending among investors thanks to its short squeeze potential. With this in mind, a short squeeze appears to be underway for CVNA stock as the stock soared more than 192% YTD. It is worth noting that CVNA stock is highly shorted with a short interest rate of 68.3% and 80.7% of its float is on loan according to Ortex data. In light of this, CVNA stock could be an intriguing investment in the short term to capitalize on its price movements. With the company preparing to release its annual report on February 23, CVNA stock could be poised to soar if it shares positive guidance for 2023.
CVNA Financials
According to its Q3 report, CVNA has $9.6 billion in assets – including $316 million in cash and $161 million in restricted cash. CVNA also reported $2.5 billion in vehicle inventory – declining from $3.1 billion at the beginning of the year. This decline in inventory could be attributed to CVNA selling inventory at lower prices to boost its sales. Meanwhile, CVNA has $9.2 billion in liabilities where $1.8 billion are current liabilities. CVNA also has $6.6 billion in long-term debt increasing from $3.2 billion at the beginning of 2022 which is mainly due to its acquisition of ADSEA.
In terms of revenues, CVNA reported a YOY decline to $3.3 billion compared to $3.4 billion. Despite this, the company has improved its revenues for the 9 months period from $9 billion in 2021 to $10.7 billion. As for the cost of sales, CVNA reported $3 billion in Q3 compared to $2.9 billion a year ago. However, the cost of sales increased significantly for the 9 months period to $9.7 billion from $7.6 billion in 2021. This increase is mainly attributed to CVNA purchasing its inventory at high prices during the market’s peak and selling them at lower prices to boost its sales.
In light of this, CVNA’s gross profit declined to $359 million in Q3 compared to $523 million in the same year-ago period. Given the company’s declining profit margins, CVNA’s net loss widened to $508 million compared to $68 million last year. In total, CVNA reported a net loss of $1.4 billion for the 9 months period compared to $105 million a year ago.
Technical Analysis
CVNA stock is currently trading at $13.56 and has supports near 12.80, 9.54, and 6.37. The stock also shows resistances near 17.12, 19.81, and 24.50. Despite the risks regarding the company’s future, CVNA soared more than 192% YTD which could be attributed to the short squeeze the stock is witnessing. With this in mind, CVNA is one of the most shorted stocks which could allow the stock to further run over the coming weeks thanks to the stock’s increasing momentum. Given that the company intends to post its annual report on February 23, CVNA stock has the potential to soar if the company shares positive guidance for 2023.
After recently breaking through its resistance, CVNA appears to be primed to run especially with its run in after-market trading where the stock reached $16.87. With that in mind, CVNA is gaining momentum thanks to its short squeeze which could see the stock break through its resistance near $17.12 with strong buying activity. However, if the stock fails to break through that resistance, bullish investors could wait for a pullback near $12.8 to enter their positions in CVNA stock to capitalize on its ongoing short squeeze.
Considering the CVNA’s short squeeze potential, accumulation is trending upwards and the MACD is bullish to the upside. Meanwhile, the RSI cooled down from 87 to 79 indicating that CVNA is overbought. However, with the stock gaining momentum as a short squeeze play, CVNA has the potential to continue its impressive run over the coming weeks. CVNA has an OS of 105.9 million and a float of 84.9 million.
CVNA Forecast
With the stock witnessing a short squeeze that sent the stock soaring 120% YTD, CVNA stock could be one to watch closely as it could further run given its short data. Despite its short-term potential as a short squeeze play, CVNA is a risky investment as filing for bankruptcy is a possibility for the company thanks to its mounting debt load. While the company is working to reduce its costs in the coming quarters, such reductions could fail to achieve the company’s financial targets. With nearly $7 billion in long-term debt, a high cash burn rate, and widening net losses, CVNA stock may not be worth the risk for long-term investors. However, the stock’s meme status and high short interest could make it a profitable trade in the short term.
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