Carvana shares jump more than 30% from record lows

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

Michelle Castillo | CNBC

Shares of Carvana on Thursday put up their best day in roughly three months – representing a small, yet notable, rebound after significant declines for the used car retailer.

The stock increased by 31.6% on Thursday to close at $9.99 per share. The move in the heavily shorted stock came as the broader market surged on news of cooling inflation.

Despite the double-digit increase, the embattled stock remains off roughly 96% this year. It’s down roughly 30% since last Thursday, when the company missed Wall Street’s top- and bottom-line expectations for the third quarter.

The missed expectations and a lackluster outlook were in addition to the used car market falling from record demand, pricing and profits during the coronavirus pandemic. Shares of Carvana sunk to $6.50 earlier this week – a record low for the stock.

Carvana grew exponentially during the coronavirus pandemic, as shoppers shifted to online purchasing rather than visiting a dealership, with the promise of hassle-free selling and purchasing of used vehicles at a customer’s home. But analysts are concerned about the company’s liquidity, increasing debt and growth.

There was no apparent reason for Thursday’s stock increase, however its short-seller investor base may have helped. Carvana is one of Wall Street’s most heavily shorted stocks, with nearly 40% of shares available for trading sold short, according to FactSet.

Stocks with high short interest are likely to pop in market rallies, as investors who have bet against these companies are likely to cover their short positions by buying back borrowed stock. This can lead to what’s known as a short squeeze.

More than 40 million shares of Carvana traded hands during the session. That compares to a 10-day average of 27 million shares.

–CNBC’s Michael Bloom contributed to this report.

(With inputs from CNBC)