Internet retailer Carvana Co. (CVNA) operates an e-commerce platform for buying and selling used cars in the United States. The company’s platform enables customers to research, inspect, obtain financing, and purchase a vehicle.

According to Bloomberg Law, CVNA is speaking with lawyers and investment bankers about options for managing its debt load after facing plunging used car prices that raised solvency issues. Moreover, high costs led to the company cutting 1,500 employees, or 8% of its workforce, last month.

The stock has declined 98.1% year-to-date and 82.7% over the past six months to close its last trading session at $4.32. It is down 38.7% over the past month. It is trading below its 50-day moving average of $10.22 and 200-day moving average of $41.38.

Here are the factors that could affect CVNA’s performance in the upcoming months:

Poor Bottom Line

For the fiscal third quarter that ended September 30, CVNA’s net sales and operating revenues decreased 2.7% year-over-year to $3.39 billion. Net loss attributable to CVNA rose 784.4% from the prior-year quarter to $283 million. Net loss per share of Class A common stock increased 602.6% from the prior-year period to $2.67.

Weak Profitability

CVNA’s trailing-12-month gross profit margin of 10.81% is 69.6% lower than the industry average of 35.58%. Its trailing-12-month EBITDA margin and net income margin of negative 6.32% and 5.99% compare to the industry averages of 11.11% and 5.14%, respectively.

Its trailing-12-month ROCE, ROTC, and ROTA of negative 264.04%, 10.77%, and 9.04% compare to the respective industry averages of 12.93%, 6.59%, and 4.45%.

Bleak Analyst Estimates

The consensus EPS estimate of negative $2.14 for the quarter ending December 2022 indicates a 109.8% year-over-year decline. Likewise, the consensus revenue estimate for the same quarter of $3.20 billion reflects a decrease of 14.7% from the prior-year period.

Moreover, CVNA has missed consensus EPS estimates in all four trailing quarters. Street EPS estimate for fiscal 2022 of negative $10.07 reflects a decline of 517.8% year-over-year.

POWR Ratings Reflect Bleak Prospects

CVNA’s POWR Ratings reflect the company’s bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CVNA has a Stability grade of F, in sync with its five-year beta of 2.31.

The stock also has an F grade for Sentiment and Quality, consistent with bleak analyst estimates and poor profitability.

In the 58-stock Internet industry, it is ranked last. The industry is rated F.

Click here to see the additional POWR Ratings for CVNA (Growth, Value, and Momentum).

View all the top stocks in the Internet industry here.

Bottom Line

CVNA is currently facing a debt burden that could hamper the company’s operations. Moreover, its bleak profitability scenario is concerning. With analysts downgrading the stock recently, CVNA might be best avoided now.

How Does Carvana Co. (CVNA) Stack up Against Its Peers?

While CVNA has an overall POWR Rating of F, one might consider looking at its industry peers, Travelzoo (TZOO), trivago N.V. (TRVG), and Yelp Inc. (YELP), which have an overall B (Buy) rating.

CVNA shares fell $0.14 (-3.24%) in premarket trading Thursday. Year-to-date, CVNA has declined -98.14%, versus a -17.36% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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