With a 4.67 billion market cap, 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 and identify a vehicle, inspect it using its 360-degree vehicle imaging technology, obtain financing and warranty coverage, purchase the vehicle, and schedule delivery or pick-up from their electronic devices.

Investors have been bearish about CVNA due to its disappointing financials and decelerating growth. The company has recently faced several headwinds, including reconditioning and logistics network disruptions, high used vehicle prices, rapid hikes in interest rates, surging fuel prices, and other macroeconomic uncertainties.

Analysts at Needham & Company LLC reduced their price target on the stock from $80.00 to $31.00.

However, surprisingly, CVNA witnessed head-turning gains on July 5. The stock gained 26.1% in price, closing the session at $27.58.

The stock has declined 88.7% year-to-date and 91.7% over the past year to close the last trading session at $26.30. It is currently trading 93% below its 52-week high of $376.83, which it hit on August 10, 2021.

Here’s what could shape CVNA’s performance in the near term:

Poor Financials

For its fiscal first quarter ended March 31, 2022, CVNA’s gross profit declined 11.8% year-over-year to $298 million. Its selling, general and administrative expenses amounted to $727 million, up 83.1% year-over-year. Also, the company’s net loss before income taxes widened by 517.1% from the year-ago value to $506 million.

CVNA’s adjusted EBITDA loss stood at $364 million, compared to a $37 million loss reported in the prior-year period. In addition, the company’s net loss and net loss per share of Class A common stock came in at $260 million and $2.89, respectively, worsening by 622.2% and 528.3% year-over-year.

Weak Growth Prospects

Analysts expect loss per share to widen 773.1% from the prior-year period to $1.75 in its fiscal 2022 second quarter (ended June 2022). Also, the $6.97 consensus loss per share estimate for the current year (ending December 2022) reflects a widening of 327.6% year-over-year.

Furthermore, Street expects CVNA’s EPS to decline 210.5% per annum over the next five years. The company has missed the consensus EPS estimates in three of the four trailing quarters, which is disappointing.

Low Profitability

In terms of trailing-12-months gross profit margin, CVNA’s 13.50% is 63% lower than the 36.51% industry average. Likewise, its trailing-12-months EBIT margin is negative 3.17%, and its trailing-12-months net income margin is negative 2.55%. Furthermore, the company’s trailing-12-months ROCE and ROTA are negative 161.35% and 4.73%, respectively.

POWR Ratings Reflect Bleak Prospects

CVNA’s overall rating of F translates to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

CVNA has an F grade for Stability and Quality. The stock’s relatively high beta of 2.34 justifies the Stability grade. In addition, CVNA’s F grade of Quality is consistent with its lower-than-industry profit margins.

CVNA is ranked #64 out of 65 stocks in the F-rated Internet industry.

Beyond what I have stated above, we have also given CVNA grades for Value, Sentiment, Growth, and Momentum. Get all the CVNA ratings here.

Bottom Line

CVNA reported disappointing fiscal 2022 first-quarter results. Moreover, bearish investors’ sentiments are evident from the stock’s substantial decline this year. 

Furthermore, the stock is currently trading below its 50-day and 200-day moving averages of $35.20 and $164.11, respectively, indicating a downtrend. Also, the stock’s recent surprise gains were seemingly not backed by some positive news. And, given the challenging macro environment, we think it could be wise to avoid CVNA now.

How Does Carvana Co. (CVNA) Stack Up Against its Peers?

CVNA has an overall POWR Rating of F. One could also check out these other stocks within the Internet industry: Yelp Inc. (YELP) with a rating of A (Strong Buy) and trivago N.V. (TRVG), and Travelzoo (TZOO) with a B (Buy) rating.

CVNA shares were trading at $25.50 per share on Thursday morning, down $0.80 (-3.04%). Year-to-date, CVNA has declined -89.00%, versus a -17.88% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

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