Carvana Co.’s (NYSE:CVNA) stock soared by 40% on Thursday following a stronger-than-expected first-quarter earnings report, compounding losses for short sellers who have bet against the used car retailer. With the stock’s annual gain surpassing 1,500%, short sellers have incurred losses totaling $3.9 billion, according to data from S3 Partners LLC. Thursday’s surge alone resulted in over $860 million in paper losses for short sellers.
The remarkable upward trajectory marks a significant turnaround for Carvana, which faced challenges in 2022 amid the post-Covid economic downturn. Despite the substantial gains over the past year, Carvana’s stock remains below its peak of $370 in August 2021, during the height of the COVID-19 pandemic’s impact on used car demand. Following declines in 2021 and 2022, the stock began to rebound last year.
Although Wall Street’s sentiment toward Carvana remains mixed, with only four buy ratings, 17 holds, and three sells, analysts have become increasingly bullish on the company following its earnings beat. JPMorgan analysts upgraded Carvana to overweight from neutral, raising the price target to $130 from $70, citing “continued rapid progress on all fronts.” Similarly, analysts at William Blair raised their 2024 adjusted earnings estimate by over 60% to nearly $1 billion, expecting significant profitability growth in the coming years.
This optimistic outlook reflects a significant shift from Carvana’s financial performance just two years ago when it incurred losses of over $1 billion. With increasing sales and the potential for margin expansion, analysts anticipate Carvana establishing itself as a leader in automotive retail.
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