Despite recent struggles, online car seller Carvana’s shares may see their best monthly gain in the company’s history as speculative trading drives up the stock’s prices.
- Carvana’s stock doubled during the month of January despite the used car industry’s negative outlook this year.
- Prices on used vehicles have declined as consumers hesitate to make large purchases amid economic uncertainty.
- The online used car seller’s success in the first month of the year was the opposite of the company’s performance at the end of last year when Carvana faced potential bankruptcy.
- Some warn that the sudden jump in Carvana’s stock prices is similar to the meme stocks of 2021 when social-media trends drove up prices on struggling companies.
Why it’s news
Mild improvement in the used car market in recent weeks could be the cause of Carvana’s sudden boost. Car markets are beginning to settle after a hectic few years following the pandemic.
While Carvana is enjoying the boost, experts think the stock improvement is temporary.
“The combination of a slight improvement in the narrative around the used-car market in January and a high short interest is driving this rally. I don’t think any long-term or long-only investors are engaging right now,” says JP Morgan analyst Rajat Gupta.
On Tuesday, Carvana’s shares climbed as much as 12% but ended down 6.4%. Nearly 81,000 call contracts were exchanged on Tuesday, Bloomberg reports.