Carvana stock (CVNA) surged as much as 40% on Friday after the used car platform posted its first-ever annual profit and issued better-than-expected guidance.
The results prompted the company's leadership to take a victory lap during its earnings call on Thursday.
“It's very hard for a group to go through a period like the last two years and not disintegrate under the pressure. We didn't disintegrate,” Ernie Garcia, CEO and chairman of Carvana, told analysts.
In its latest results, Carvana posted net income of $150 million for 2023, helped by a gain in debt reduction.
For the current quarter, the company is guiding retail units up slightly on a year-over-year basis and an adjusted core profit "significantly above $100 million."
The results are a turnaround for a company that was facing bankruptcy speculation in December 2022 and a share price as low as $3.55.
On Friday, shares were hovering around $70 each.
Over the past two years, the Tempe, Ariz.-based company has been aggressively focused on achieving profitability and restructuring its debt at the near-term expense of growth. Once a pandemic darling, Carvana announced layoffs in 2022 to cut costs and preserve cash.
Short sellers have since piled onto the stock. In the first half of 2023, shares soared 1000% to more than $50 each, leaving short sellers with a $2 billion loss.
On Friday, short interest sat just above 32% of the float, continuing to make shares susceptible to violent upward moves, or short squeezes, after positive headlines.
“The squeeze has been real for a while, although it has ebbed and flowed along with its stock price,” Ihor Dusaniwsky, managing director of S3 Partners, told Yahoo Finance on Friday.
“If its recent price strength continues, we should expect more short covering, helping push CVNA’s stock price even higher,” he added.
Following Carvana's results, Raymond James and William Blair analysts upgraded the stock to Market Perform and Outperform, respectively.
Meanwhile, Jefferies analyst John Colantuoni maintained an Underperform rating, acknowledging an "impressive start" to 2024 but noting long-term visibility "remains low." In 2023, Carvana sold 312,847 units, a decrease of 24% from the prior year.
“Guidance assumes Units sold remain subdued, making it difficult to assess whether CVNA can maintain recently elevated unit economics once returning to growth, a risk that reduces visibility in long-term profitability and keeps us cautious on the stock,” wrote Colantuoni and his team. The analyst has a $30 price target on the stock.
Carvana stock has two Buy, 16 Hold, and five Sell analyst recommendations.
Correction: A previous version of this story misstated the name of S3 Partners. We regret the error.
Ines is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.
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