Carvana’s stock price surged 40% after a strong first-quarter earnings report. This jump added to the woes of short sellers, who have lost $3.9 billion betting against the company. Carvana’s stock is still far from its all-time high in 2021, but it has rebounded more than 1,500% in the past year.

Analysts are mixed on Carvana’s future. While most analysts recommend holding the stock, some are more bullish after the earnings report. JPMorgan upgraded Carvana to “overweight” and raised its price target to $130. William Blair also raised its earnings estimate for Carvana and expects its profitability to triple by 2025.

Carvana bulls believe that the company’s sales growth and margin expansion could make it a leader in the automotive retail industry.

However, there are some who are immediately drawing comparisons to the rise of Gamestop stock which has raised a few eyebrows, but is is warranted? While there are definitely some similarities between the Carvana situation and the Gamestop short squeeze we saw earlier, but there are also some key differences:

Similarities:

• High Short Interest: Just like Gamestop, a large portion of Carvana’s stock (around 56%) was being shorted by investors betting the price would go down.
• Stock Price Surge: A positive earnings report and surprising profit led to a significant increase in Carvana’s stock price, causing losses for short sellers who were forced to buy back shares at a higher price to close their positions.
• Short Squeeze: This rapid price increase likely triggered a short squeeze, where short sellers rush to buy back shares to limit their losses, further driving the price up.

Differences:

• Underlying Fundamentals: Gamestop’s surge was seen by many as more of a meme stock frenzy, driven by social media hype rather than strong financial performance. Carvana’s price increase is based on a seemingly successful turnaround and exceeding profit expectations.
• Market Conditions: The broader market sentiment is different this time around. The Gamestop short squeeze happened during a period of low interest rates and a more speculative market environment. Currently, the Federal Reserve is raising interest rates, which can put downward pressure on stock prices in general.

Whether this will be a repeat of Gamestop remains to be seen. The Carvana situation has some elements of a short squeeze, but the underlying fundamentals seem to be playing a bigger role this time around.