The vehicle market has been through dramatic shifts emanating from various factors like inflation, interest rate hikes, pent-up demand, and tax refunds. According to Cox Automotive, the used-vehicle market surpassed expectations in 2023, closing out the year with around 35.9 million units sold, with retail accounting for 19 million units.
The upcoming year is anticipated to see a boost in total pre-owned vehicle sales to 36.2 million units, with used retail sales reaching 19.2 million units, despite persistent supply chain issues. Globally, the e-commerce market for used cars is expected to grow at a CAGR of 12.2% by 2031.
Online pre-owned vehicle retailer Carvana Company (CVNA) is set to capitalize on this growth, leveraging its disruptive business model and expanded logistics network to better serve a wider customer base.
While Carvana’s shares reflected impressive growth post its 2023 slump, concerns have now risen about its valuation following an astounding 900% surge over the last year.
Unveiling the Story of Carvana Company Stock
Headquartered in Tempe, Arizona, Carvana (CVNA) is an online retailer specializing in pre-owned vehicles. Recognized as the fastest-growing online pre-owned car dealer in the U.S., Carvana distinguishes itself through its iconic multi-story glass tower vending machines for cars. Making a mark in the industry, Carvana secured a spot in the 2021 Fortune 500 list, a notable achievement for such a young entrant. The company currently boasts a market cap of $16.3 billion.
CVNA shares surged by an impressive 931% over the past 52 weeks, significantly outperforming the S&P 500 Index’s ($SPX) 31% rise during the same period.
With a price-to-sales ratio of 1.49 times, higher than the industry norm of 0.90x, and a price-to-cash flow valuation of 115.77x, significantly exceeding industry peers, Carvana’s valuation looks stretched given its uncertain growth trajectory.
Balancing Profitability Amidst Growing Pains
Ending 2023 with a $114 million quarterly loss ($1 per share), Carvana witnessed a stock surge post its first-ever annual profits, reporting a net income of $450 million for the year, beating Wall Street’s estimates. The company’s improving profitability offset concerns over a 21% revenue drop in 2023.
In 2023, Carvana’s adjusted EBITDA hit $339 million ($1.084 per unit) with a 3.1% margin, reflecting a strategic shift towards profitability. By focusing on cost reduction, streamlining the purchasing process, leveraging data analytics for pricing and risk evaluation, and optimizing existing infrastructure, Carvana positions itself with a competitive edge through vertical integration. The company also addressed its debt burden by converting unsecured debt to secured notes, slashing total debt by over $1 billion.
Carvana’s encouraging Q1 2024 guidance includes projections of increased annual retail units sold and adjusted EBITDA surpassing $100 million, provided the economy remains stable. With current quarter results aligning with expectations, Carvana anticipates steady retail gross profit per unit (GPU), rising wholesale GPU, and reduced SG&A per retail unit without significant one-time impacts.
Analyzing Analyst Expectations for Carvana Stock
Analysts provide a consensus “Hold” rating on Carvana stock, with two “Strong Buy,” 17 “Hold,” and one “Strong Sell” recommendations out of 20 analysts covering the stock.
Trading above the average analyst price target of $58.73, CVNA’s highest price target of $90, set by RBC Capital in March, suggests a potential 14% rally in the stock price.
Post Q4 results and current-quarter guidance, analysts at William Blair and Raymond James upgraded their ratings on Carvana to “Outperform” and “Market Perform,” respectively. Optimistic about GPU trends and profit growth, these analysts foresee a breakout for Carvana supported by a positive 2024 outlook.
Wrapping Up the CVNA Stock Narrative
Amidst a thriving online used car retail landscape, Carvana has continued to excel. Fueling the upward trend in its shares are expectations of falling interest rates, last year’s profit improvements, and optimistic projections for the current quarter.
While Carvana’s shares trade above the mean price target, the surge appears somewhat inflated. Given the stock’s potential overvaluation, caution is warranted for investors.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
