Carvana (CVNA:US) Stock: Short Sellers See Further Downside

Short selling data can help investors avoid large losses. If a stock has a high level of short interest, it indicates that institutions expect it to fall.

In this report, we are going to look at the short interest data on Carvana Co (CVNA:US). Carvana is an online used car retailer. Via its e-commerce 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. The company is listed on the New York Stock Exchange and currently has a market cap of $1.73 billion.

Short Interest Data

2iQ data shows that at present, Carvana has a very high level of short interest. Currently, 63.77 million CVNA shares are on loan, which represents roughly 64.03% of the company free float.

The utilization rate is 100%, which indicates that short sellers have shorted every available share available for lending. Meanwhile, the cost to borrow stock is a high 12.36%, which indicates that demand for the stock from short sellers is elevated.

This data clearly indicates that sentiment towards the stock within the institutional world is bearish right now.

Multiple Challenges

It’s not hard to see why short sellers are targeting Carvana at the moment.

For a start, the company has a massive amount of debt on its balance sheet. Carvana’s Q4 2022 results showed that at the end of 2022, the company had long-term debt of $6.6 billion on its books. Cash and cash equivalents were just $434 million. The company has plans to restructure some of its debt. However, major bondholders have opposed the company’s plans.

Secondly, the business environment is very challenging. As a result of high inflation, high interest rates, and concerns over a recession, demand for used cars has slowed recently. We can see this in the company’s recent results. For the fourth quarter of 2022, Carvana’s revenue was down 24% year on year, while losses surged to $806 million from $89 million a year earlier.

It’s worth noting that Carvana has advised that it expects much lower losses for Q1 2023. However, this doesn’t seem to have impacted short sellers’ views.

In light of the sky-high level of short interest here, we think caution is warranted towards the stock.