Carvana Outlook Impresses and Price Target Is Raised. But This Risk Remains.

His move comes after a J.P. Morgan conference on Wednesday, during which Carvana raised its expectation for gross profit per unit, or GPU, as well as adjusted earnings before interest, taxes, depreciation, and amortization, or Ebitda, for the current third quarter, which ends in September.

The revision stems from Carvana selling more loans in the third quarter as well as implementing operational improvements over the past 18 months—such as lowering costs at inspection centers and insourcing services. The good news comes after the company reported record GPU in the first and second quarters.

Sebastian assumes contributions from at least some fundamental changes will prove “sustainable” and reduced his full-year estimate for 2024 from a $1.60 loss per share to a $1.23 loss. Analysts tracked by FactSet assume a loss of $2.56 per share for 2024.

Carvana’s shares fell nearly 1% on Thursday. They closed down 5.8% to $41.44 on Wednesday, implying a nearly 9% upside to Baird’s new price target.

Carvana’s shares have moved up a remarkable 765% so far this year after starting the year at less than $5. This can partly be attributed to the significant portion of Carvana shares being shorted—about 42.2% of the shares available for trading are held by short sellers, according to FactSet. This compared with the 14.1% short interest for the SPDR S&P 500 exchange-traded fund. 

This means investors have borrowed and sold a large amount of Carvana shares with the intention of buying them back at a lower price later to profit from the difference and cover the borrowing. When there is a positive update by a company with a heavily shorted stock, prices can move up as the short sellers rush to buy and close out their bets.

That doesn’t negate Sebastian’s price target or those by other analysts, but the short selling should be considered a significant risk factor for investors.

Write to Karishma Vanjani at [email protected].