A Carvana Kinda Market
And beware of the mother of the mother of ALL short squeezes. Fun while they last if you're long, but don't lose sight of what may happen next.
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Longterm stocks go up, but days like today should remind you… from here to there what goes up fastest, can also fall the hardest if everything doesn’t go JUST right.
You can see that today in names like Carvana CVNA 0.00%↑ and even Walmart WMT 0.00%↑ , but the dynamics of both are very different.
Walmart is a solid company that arguably is taking “a breather,” while as my friend Jeff Macke also says, is taking share from Target and others. At these levels, meanwhile, Carvana remains highly speculative and even with today’s slip is priced as if it’s the second coming of Tesla TSLA 0.00%↑.
With valuations like that, in markets like these, all that matters is that the momentum keeps rising with no veering from perceived-to-be perfection among the favored growth metrics du jour.
So, with Carvana, analysts have tried to spin the quarter as positive, such as one analyst who at the tail-end of his summary wrote…
We are sympathetic to the lack of specificity on margin outlook given the uncertainty with respect to the consumer, inflation, and interest rates.
Hint: “Lack on specificity on margins” is not something one thing investors in stocks like this want to see.
Ditto this on Hims and Hers HIMS 0.00%↑…
“However, setting guidance could be challenging.”
That was after the analyst wrote a glowing forecast for the quarter. Hint: No bueno, certainly not at these valuations… and especially not with the overhang of uncertainty related to significant legal and regulatory issues layered on top. (The later of which are ignored to the point of being mocked by most.)
SquEEEEEEze!
The moves in many of these stocks like Hims have been exaggerated because of short squeezes, except: These are not just short squeezes or the mother of all short squeezes, but the mother of the MOTHER of all short squeezes.
Squeezes are fun while they last, even wildly profitable for those who play that game, but like any game – and it IS a game – there are always losers. With short squeezes, on the way up, it’s a reminder as my pal J.C. Parets of All-Star Charts tweeted the other day: short-sellers are future buyers. To which I say… until they’re not. Because when they’re gone, they’re gone… and if all doesn’t go right those investors – who rose the express elevator up are likely to walk into an empty elevator shaft on the way down. (That’s because short sellers, if they’re still in the stock, are buyers on the way down, too – often cushioning the blow.)
Oh, and by the way, don’t go labeling me a permabear. In the end – and yes, I’m talking to you kids out there, assuming a few of you are reading this – it’s all about respecting the risk. One day, especially if you’re feeling invulnerable because you’re making money, you will wish you had!
Which gets us back to Carvana. I have no idea what the future holds for it. I’ve written about it numerous times… all the way up!
What the Filings Say
What I do know is that there were a few noteworthy new items in its filings post- earnings, plus one fascinating comment on its earnings call. Such as…