Ant,
A recent 4/20/19 TMF article “Why Short-Sellers Are Wrong About Carvana: Shot selling this highly valued stock may seem like a good idea at first, but it’s way off base in the long run” by TMFCop Rich Duprey, that BTW I agree with, might allay your concerns.
https://www.fool.com/investing/2019/04/20/why-short-sellers-…
Carvana (NYSE:CVNA) is the third-most-shorted stock on the NYSE, but there is no good reason for investors with an appropriate long-term investing horizon to worry.
(snip)
Short story long
Short-sellers are likely shorting Carvana’s stock because its valuation has gotten well ahead of its performance. Where Carvana trades at 4.6 times its sales, CarMax goes for just a fraction of its sales at 0.7 times. Even Tesla, which moved to an online-only sales model last month but has also suffered a big hit for missing sales goals, trades for 2.1 times its sales.
According to The Wall Street Journal, over 21 million shares of Carvana stock were sold short. While that’s a 12% drop from the prior period, it still amounts to 56% of Carvana’s float, or the number of shares outstanding, which puts it third, behind only Yeti and Lannett.
However, that still means Carvana’s short interest ratio – the theoretical amount of time it would take short-sellers to cover their position – is 14 days. Anything over seven is considered a lot. Should Carvana’s earnings report beat expectations, or if any other good news alights on the used car dealer, short-sellers could get caught in a short squeeze and send Carvana’s stock soaring. It’s why shorting is a risky game to play.
It would seem those shorting Carvana’s stock believe the underlying business doesn’t yet justify the valuation. Although they could be right for the near term, the used car dealership still has plenty of room to scale up. Despite some wild-eyed goals for the future, Carvana may be a business you don’t want to bet against over the long haul.
Hope the above addresses the short concerns of yours and other readers here. I am very wary of articles written by short-sellers, especially like the one cited at SA.
As always, conduct your own due diligence and decision-making.
Regards,
Ray