Why Carvana stock was flying higher today


what happened

share of caravan (CVNA 24.43%) Shares of online sellers of used cars were flying today on an apparent brief squeeze, which could lead to bankruptcy.

The stock was up 24% as of 11:16 a.m. ET Wednesday.

so what

Carvana’s movement comes across as meme stock Bed Bath and BeyondWhich is teetering on bankruptcy, and AMC Entertainment These stocks rallied in a brief squeeze, showing a concerted effort to push them higher.

Carvana wasn’t previously part of the group of meme stocks that first caught the eye on Reddit’s WallStreetBets page, but its low price and high short-sale ratio seem to have attracted interest from the same crowd.

As of Dec. 15, 80% of the float was sold short, meaning most investors are betting on the stock to go lower, even though it’s already down more than 98% from its peak late last year. Its daily volume topped its 90-day moving average at 11:30 a.m. today, another sign of pressure.

Carvana has been facing a cash crunch after falling used car prices over the past few months, reducing the value of its inventory and forcing it to conserve cash. Last week, the company abandoned plans for a new $65 million inspection center in the Phoenix area, and also appears to be discounting prices on its vehicles to clear inventory and raise cash.

what now

Carvana’s inclusion with meme stocks adds a new element of intrigue to the stock, but investors should be wary of buying its shares as it heads into a no-news short squeeze. Although meme traders have generated sky-high returns in the past, these stocks eventually crash without any fundamental improvement in the business.

With car prices still falling, things look set to get worse for Carvana in the near term and bankruptcy is a very real possibility.


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