Carvana shares rise from all-time lows

People try their luck by winning a car from the Carvana vending machine at the SXSW festival in Austin, Texas on March 12, 2016.

Michelle Castillo | CNBC

Actions of Carvana jumped up to 32% on Thursday morning, representing a small but notable increase after a week of significant drops for the used car dealer.

The stock reached $ 10 per share during early trading, but returned some of those gains and was trading at around $ 9.49 per share during mid-morning trading, up 25%. The move came as the broader market rose on news of falling inflation.

Despite the double-digit increase, the embattled stock remains out by around 97% this year. This includes a drop of more than 30% since last Thursday, when the company missed Wall Street’s expectations for the third quarter.

Missed expectations and lackluster outlook added to the used car market as it fell from record demand, prices and profits during the coronavirus pandemic.

Carvana grew exponentially during the coronavirus pandemic, as shoppers switched to buying online rather than visiting a dealership, with a promise to seamlessly sell and buy used vehicles at the customer’s home. But analysts are concerned about the company’s liquidity, rising debt and growth.

There was no apparent reason for Thursday’s stock hike. More than 17 million shares were traded at 10:40 am on Thursday. This compares to a 10-day average of 27 million shares.

Carvana is one of Wall Street’s best-selling short stocks, with nearly 40% of the stock available for trading being sold short, according to FactSet.

Shares with high short interest rates are likely to appear in market rallies, as investors who have bet against these companies are likely to hedge their short positions by repurchasing borrowed shares. This can lead to what is known as a short squeeze.

–Michael Bloom of CNBC contributed to this report.