Among the several nearly bankrupt companies out there making a comeback, Carvana (NYSE:CVNA) is perhaps among the most intriguing. Shares of CVNA stock opened the year at less than $5 per share. However, they have since skyrocketed to roughly $45 per share at the time of writing. For those who timed this purchase well, they could have achieved a 10x return in CVNA stock in the span of less than a year.
That’s incredible in its own right, and such momentum often breeds more momentum. However, today’s 8% move higher in Carvana appears linked to another key catalyst.
Various reports of insider buying activity are boosting CVNA stock today. Via a 13D filing with the Securities and Exchange Commission (SEC), it was made public that Ernest Garcia II, the father of Carvana CEO Ernest Garcia III, purchased a significant number of shares.
Essentially, the trust owned by Garcia II (which has CEO Garcia III as the sole beneficiary) purchased more than 3.1 million shares of Class A stock for an average of $37.048 per share. This transaction works out to approximately $116 million, and suggests that the company’s CEO and his family certainly believes in Carvana’s future.
Let’s dive into what to make of this news today.
CVNA Stock Surges Amid a Massive Insider Buy
Any time the CEO of a given company personally adds a multi-million dollar stake in the company the CEO is running, investors take notice. However, when it’s a $116 million stake, that’s an entirely different story.
The size of this insider purchase, combined with its timing (considering how high the stock has soared this year) suggests to many investors that there could be plenty of momentum ahead. Insiders typically have a good handle on the inner workings of the company they’re running. Accordingly, when massive bets like this are placed, outside investors are forced to ask the question: “What do they know that I don’t?”
Carvana’s online dealership model has come under scrutiny. Its losses have expanded and the company’s credit rating was downgraded on a debt restructuring deal. However, it’s clear investors are still looking for beaten-down stocks with squeeze potential this year, as CVNA stock has violently recovered.
We’ll see where this stock goes from here. This insider stock purchase certainly caught me by surprise today. Who knows, maybe there’s plenty of room to run for this troubled company. That said, I’ll happily watch this stock from the sidelines, given the outsized risk I see with companies like Carvana in this current macro environment.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
