Carvana, one of the largest car retail companies, has seen their stock shorted more and more recently but defied those investors as the stock value has doubled in the last two months. This has caused a $1.2 billion headache to hedge funds who were expecting the stock to tumble.
The Arizona-based online marketplace, where customers can sell, finance and buy back used cars, went public in April 2017 and quickly amassed detractors alarmed at the pace that it burnt through money.
Hedge funds have steadily been building up bets against Carvana’s stock by borrowing shares from other investors and selling them, hoping to buy them back later at a lower price — a practice known as “short selling”.
Almost 54 percent of Carvana’s entire free float is now shorted, a massive $1.2 billion bet against the money-losing company best known for its car “vending machines”. That makes it the 13th most shorted stock in the US, according to S3 Partners, a financial technology and analytics firm.
However, Carvana’s stock has almost doubled since mid-February to trade at $61.4 a share recently, giving it a market capitalization of $9.3 billion and leaving the short sellers nursing a $613 million mark-to-market loss this year, S3 Partners calculates. Just since the beginning of March short sellers have lost $373 million.
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