Kerrisdale Capital discloses short position in used-car firm Carvana

By Thomson Reuters Feb 26, 2024 | 10:32 AM

(Reuters) – Investment firm Kerrisdale Capital revealed a short position in Carvana on Monday, calling it a “poorly capitalized, growth-challenged auto retailer”.

Shares of Carvana have surged nearly 40% after the used-car retailer posted its first annual profit last week, a sharp turnaround powered by cost cuts and a debt-reduction deal with bondholders. On Monday, shares of the company were up about 4% in morning trade.

“Carvana’s valuation was already stretched – now, its share price is so ridiculous that it doesn’t just trade at levels unheard of for an auto dealer, it trades at a premium to leading tech companies,” Kerrisdale Capital said in a statement.

Carvana had $2.32 billion in short interest, or 39.6% of its free float in short position, as of Friday, according data and analytics firm Ortex.

“In addition to the disappointing growth outlook, there are signs that further improvement in unit economics is nearing an end,” Kerrisdale Capital said in a statement.

Carvana did not immediately respond to a Reuters request for comment.

The company became popular during the COVID-19 pandemic, when demand for used cars shot up because a global chip crunch squeezed production of new cars.

After that, though, Carvana has struggled to clear its inventory of used cars acquired at elevated prices, as buyers cut spending due to inflation and new car production normalized.

(Reporting by Kannaki Deka in Bengaluru; Editing by Pooja Desai)