$CVNA A Pure Short Squeeze PlayAt its current pace, Carvana Co. (NASDAQ: CVNA) is showing no signs of ending its impressive 612.4% run since the start of the year. Recently, CVNA broke its $32 resistance which if confirmed could see the stock continue climbing to its next resistance at $41 which would indicate a 20% upside. There are several factors that can push CVNA stock to its next resistance, chief among them, are macroeconomic factors including new and used car price fluctuations that could benefit the used car retailer in the long run. With the stock’s short data still high despite its impressive performance YTD, CVNA could be poised to continue its current run as the factors surrounding the company’s business continue to improve.
CVNA Fundamentals
There are a few notable factors that could be attributed to CVNA’s run this year. The first reason is increased demand for used cars due to consumers seeking affordable alternatives as a result of inflation and increasing car prices and the second reason is the increasing popularity of used EVs. These 2 factors are probably the main cause of why CVNA is currently running.
Growing EV Sales
According to CVNA’s 2022 end-of-year data, its EV sales have increased by 786% in the past 5 years. This trend has shown signs of growing according to data accumulated this year which includes a study by Cox Automotive indicating that 51% of vehicle shoppers are now considering purchasing an EV. On that note, CVNA provides more than 46 different EV models 40% of which are below $25 thousand which is extremely affordable given the current state of the automotive industry.
Affordability Of Used Cars
In March, 17% of new cars in the market were under $30 thousand which is a drastic decline from just 5 years prior when 44% of new cars were under the $30 thousand price point and this figure further dropped this month to 8%. This drastic shift in car affordability is likely to cause a boost in demand for used cars which would signal more revenues for CVNA.
Q2 Earnings
On August 3, CNVA is set to release its Q2 earnings report which will feature the revenue it obtained during the used car season. Analysts currently predict that CVNA will produce $2.6 billion in revenues this quarter which is a significant increase from its Q1 revenues of $1.8 billion.
That said, CVNA’s revenue may exceed that figure due to the current disparity that exists between new and used car prices. This would be clearer in June’s CPI report which is set to be released on July 12 as investors would be looking for used car prices to continue declining as that would lead to more used car sales.
The Short Squeeze That Keeps Going
Despite its impressive run since the start of the year, CVNA stock remains highly shorted with a 61.3% short interest and 51.4% of its float on loan. Given that June’s CPI would be a major catalyst for the company since it will provide a better picture of the used car market, CVNA could see a continuation if used car prices continue to drop as it would mean that it might record more sales in its Q2 earnings which is another catalyst for the stock.
Technical Analysis
CVNA stock is currently in a bullish trend and is trading in an upwards channel. Looking at the indicators, the stock is currently above the 200, 50, and 21 MAs which is a bullish indication. Meanwhile, the RSI is overbought at 79 and the MACD is bullish.
As for the fundamentals, CVNA has a major upcoming catalyst in its Q2 earnings and another catalyst in June’s CPI report on July 12. With the RSI overbought and the stock yet to confirm breaking its resistance, investors could wait for a retest of the $32 level before going long ahead of the company’s Q2 earnings.
CVNA Forecast
Given the stock’s momentum, upward trend, high short data, as well as macroeconomic factors related to affordability, it is highly likely that CVNA will see a continuation of its impressive run since the beginning of the year. With the company expected to release its Q2 earnings on August 3, investors could wait for the stock to confirm breaking its resistance before going long as the disparity between new and used car prices could see the company reporting more sales in Q2.
