Short Selling

Carvana (CVNA:US) Short Interest Remains Sky-high

Carvana Co
(CVNA:US)
12 months:
-95.96%
Activity:
Bearish
Pattern:
Rising short interest
News:
Bankruptcy fears
Carvana Co
(CVNA:US)
12 months:
-95.96%
Activity:
Bearish
Pattern:
Rising short interest
News:
Bankruptcy fears
The image background depicts many cars in a lane, with the blog introduction mentioned that 61.15 million carvana shares are on loan on top.

Short selling data can help investors manage risk. If a stock has a high level of short interest, it indicates that hedge funds and other sophisticated investors expect it to fall. 

In this report, we are going to look at the short interest data on Carvana Co (CVNA:US). Carvana operates an e-commerce platform for buying used cars. Through its platform, consumers can research and identify vehicles, inspect them using its 360-degree vehicle imaging technology, obtain financing and warranty coverage, purchase vehicles, and schedule delivery or pick-up, all from their desktop or mobile devices. The company is listed on the New York Stock Exchange and currently has a market cap of approximately $1.13 billion. 

Carvana Stock Is Being Heavily Shorted 

We last covered Carvana back in July 2022. At the time, 27.3 million shares were on loan, representing roughly 27% of the free float. We viewed this high level of short interest as a red flag. 

Since then, the stock has fallen from around $25 to $7.60. So, the short sellers have done very well here. 

However, a look at the short interest data reveals that they are not finished with the stock yet. The latest short selling data shows that at present, 61.15 million Carvana shares are on loan. That equates to short interest of a sky-high 57.7%. 

Utilization (a measure of demand from short sellers) is 100% while the cost to borrow stock is high at 12.7%. Clearly, the short sellers see further downside here. 

It’s worth noting that the number of CVNA shares on loan has surged in the last three months or so. This indicates that short sellers have been ramping up their downside bets.

Bankruptcy Fears 

As for why the short sellers are aggressively targeting Carvana, it’s most likely related to the fact that there are concerns over the company’s ability to remain solvent. 

Right now, Carvana is suffering from the toxic combination of lower used car prices, lofty operating costs, and high leverage. And in December, it came to light that a number of its largest creditors had signed an agreement to negotiate together with the company to sort out its debt load. 

This development – which sent the stock down more than 40% – prompted analysts at Wedbush to set a $1 price target for CVNA, citing rising bankruptcy risks.

“These developments indicate a higher likelihood of debt restructuring that could leave the equity worthless in a bankruptcy scenario, or highly diluted in a best case,” wrote Wedbush Analyst Seth Basham in a research note. 

"Many (Carvana) bonds have been trading at about 50 cents on the dollar, indicating investors see a high probability of default," added Basham.

It’s worth noting that Carvana shares have enjoyed a bounce this year. It seems this is the result of a meme-stock-based short squeeze. 

This doesn’t seem to have deterred the short sellers, however. The high level of short interest here suggests that they continue to believe the stock is heading lower. 

Given the high level of short interest, we think caution is warranted towards Carvana stock right now. 

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