Carvana’s (NYSE:CVNA) shares experienced a remarkable surge of nearly 40% on Friday after the used-car retailer announced its inaugural annual profit, marking a significant turnaround fueled by cost-saving measures and a debt-restructuring agreement with bondholders.
If the current gains hold, the company’s shares are poised to conclude the day at a yearly high, although they remain considerably below their all-time peak of $376.83 in 2021.
With a short interest representing approximately 16.8% of the free float as of Jan. 31, the stock was also vulnerable to a short squeeze.
Carvana, renowned for its innovative car vending machines, unveiled a profit of $150 million for the fiscal year 2023, a substantial shift from the approximately $2.89 billion loss recorded the previous year.
Amid the COVID-19 pandemic, Carvana witnessed a surge in popularity as consumers favored easily accessible used cars over newer vehicles, which were scarce due to a global semiconductor shortage.
However, despite the easing of shortages, the company grappled with the challenge of clearing its inventory of used cars acquired at inflated prices, resulting in significant debt accumulation once new car availability improved.
Moreover, a growing number of consumers opted for new vehicles to capitalize on attractive financing options and trade-in deals.
In July, Carvana struck agreements with the majority of its term bondholders, effectively reducing its outstanding debt by over $1 billion. Consequently, total debt decreased to approximately $6.3 billion last year from about $8.4 billion in 2022.
Furthermore, the company implemented cost-cutting measures and reduced its inventory through various vehicle offers over time.
J.P. Morgan analyst Rajat Gupta remarked, “We believe Carvana has sufficiently optimized its operations to navigate through a stagnant macro environment and mitigate downside risks to estimates.”
Following the announcement, analysts raised their price targets and ratings.
Over the past 12 months, Carvana’s shares have surged more than fivefold.
Featured Image: Freepik
Author Faith Yakubu 
