(Reuters) -Shares of Carvana surged nearly 40% on Friday after the used-car retailer posted its first annual profit, in a sharp turnaround powered by cost cuts and a debt-reduction deal with bondholders.
The company's shares are on track to close at a year high if gains hold, but still far from their all-time peak of $376.83 in 2021.
With a short interest of about 16.8% of free float as of Jan. 31, the stock was also susceptible to a short squeeze.
Carvana, best known for its car vending machines, on Thursday disclosed a profit of $150 million for 2023, compared with a loss of about $2.89 billion a year earlier.
The company, which allows customers to buy cars online, became popular during the COVID-19 pandemic, as people opted for readily available used cars instead of buying newer vehicles, which were in short supply due to a global chip crunch.
However, the company struggled to clear its inventory of used cars it acquired at elevated prices as the shortages eased, leaving it saddled with high debt after new car availability improved.
Additionally, more people gravitated towards new vehicles instead of used ones to take advantage of attractive financing deals and trade-in offers.
In July, Carvana signed agreements with most of its term bondholders to effectively cut its outstanding debt by more than $1 billion. Total debt fell to about $6.3 billion last year from about $8.4 billion in 2022.
Meanwhile, the company also trimmed expenses and cleared its inventory through offers on vehicles over the years.
"We believe Carvana has optimized operations enough to execute its way through a sideways macro and limit downside to estimates," said J.P Morgan analyst Rajat Gupta.
Analysts also raised price targets and ratings after the results.
Carvana's shares have risen a little more than five times over the past 12 months.