What happened
Shares of Carvana (NYSE: CVNA) were soaring today on an apparent short squeeze in shares of the struggling online seller of used cars, which could be approaching bankruptcy.
The stock was up 24% as of 11:16 a.m. ET on Wednesday.
So what
The movement in Carvana comes as meme stocks like Bed Bath & Beyond, which is teetering on bankruptcy, and AMC Entertainment were rallying on a short squeeze, showing a coordinated effort to drive these stocks higher.
Carvana was not previously part of the group of meme stocks that first got attention on Reddit's WallStreetBets page, but its low price and high short-selling ratio seem to have attracted the interest of 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 had also topped its 90-day average by 11:30 a.m. this morning, another sign of a squeeze.
Carvana is facing a cash crunch after used car prices plunged over the last several 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 the prices of its vehicles in order to clear inventory and raise cash.
Now what
Carvana's inclusion with the meme stocks adds a new element of intrigue to the stock, but investors should be wary of buying its shares simply because it's going up on a no-news short squeeze. Though meme traders have engineered skyrocketing returns before, these stocks eventually end up crashing without any fundamental improvement in the business.
With car prices still falling, things seem likely to get worse for Carvana in the near term, and bankruptcy is a very real possibility.
10 stocks we like better than Carvana
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Carvana wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of January 9, 2023
Jeremy Bowman has positions in Carvana. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
