The used car dealer Carvana (CVNA 19.16%) is seeing a boost in its share prices following a successful debt-ceiling deal and the launch of a new national ad campaign. Is this a sign that the company is on the upswing?
Carvana, an online used car dealer, had seen a sharp pullback in spending in recent months in an effort to cut its losses. Bu the company recently reported that it was expecting to reach adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) by the end of the current quarter and the newly launched ad campaign could be a sign that it is well on its way.
The successful debt-ceiling deal that was reached over the weekend also played a role in Carvana’s rising stock. Lower Treasury yields encourage car buyers with lowered interest rates, and this could help reduce Carvana’s high interest payments. Additionally, a “short squeeze” could also be playing a part, with around 70% of the stock sold short, and today’s volume already having surpassed the three-month average before noon.
Further support for the company came in the form of a bullish note from Wedbush analyst Seth Basham, who said that the asset-backed security market is improving and this could bring EBITDA “materially higher” in the second quarter.
However, despite the positive developments, Carvana still faces a considerable amount of risk. Investors will want to watch carefully to see if the company can continue on its climb and if the new ad campaign and debt-ceiling deal can help the company improve its bottom line. If Carvana proves successful, there is a lot of potential upside.