Carvana Short-Seller Losses Hit $3.9 Billion as Stock Soars

Carmen Reinicke, Bloomberg News

, Bloomberg

(Bloomberg) -- Carvana Co.’s surge Thursday added to pain for short sellers who’ve amassed major losses betting against the used car retailer as its shares have rebounded over the last year.

The 40% jump, following a better-than-expected first-quarter earnings release, pushed the stock’s annual gain past 1,500% and extended short-seller losses to $3.9 billion, according to data from S3 Partners LLC. Thursday’s move alone cost the group more than $860 million in paper losses, S3 said.

Read more: Carvana Shares Soar on Better-Than-Expected Profit and Sales (3)

The upward momentum marks a new chapter for Carvana after the stock was beaten up in 2022’s post-Covid rout. Even with the past year’s gains, Carvana is well below the $370 all-time high close it hit in August 2021, in the peak of used car demand during the Covid-19 pandemic. Shares slumped in 2021 and 2022 before a rebound began last year.

Wall Street is still largely on the sidelines when it comes to Carvana. The company has only four buy ratings, 17 holds and three sells, according to data compiled by Bloomberg. The average analyst price target of about $90 implies more than 20% downside from where shares currently trade.

Still, bulls have grown increasingly optimistic on the used car seller after the earnings beat. JPMorgan analysts led by Rajat Gupta upgraded Carvana to overweight from neutral and boosted the price target to $130 from $70 saying the results show “continued rapid progress on all fronts.”

Analysts at William Blair also raised their 2024 adjusted earnings estimate by more than 60% to nearly $1 billion. They expect that measure of profitability — which excludes interest expense, taxes, depreciation and amortization — to more than triple between 2023 and 2025.

That is “a sea change from a loss of more than $1 billion just two years ago,” analysts led by Sharon Zackfia wrote in a note reiterating the firm’s outperform rating on shares.

She added that as sales increase, margin expansion could “easily put Carvana in a class of its own in automotive retail.”