Internet retail company Carvana Co. (CVNA - Get Rating) operates an e-commerce platform for buying and selling used cars. The company’s platform enables customers to research and identify a vehicle, inspect it, obtain financing and warranty coverage, and purchase it.

Recently, CVNA experienced a cluster of insider purchases, exhibiting bullish sentiments over the stock. 10% Owner Ernest C. Garcia acquired 1.99 million shares at $21.18 per share. Chief Product Officer Daniel J. Gill increased his stake by purchasing 94,000 shares at $21.77 per share, while Chief Brand Officer Ryan S. Keeton acquired 32,000 shares at $23.06 per share.

Over the past year, CVNA’s stock has declined 90.9% and 87.6% year-to-date to close its last trading session at $28.64. However, it has gained 18.1% over the past five days and 13.9% intraday.

Here are the factors that could affect CVNA’s performance in the near term:

Bleak Bottom Line

For the fiscal first quarter ended March 31, CVNA’s net sales and operating revenues increased 55.8% year-over-year to $3.50 billion. However, its gross profit declined 11.8% from the prior-year quarter to $298 million. Net loss and net loss per share of Class A common stock rose 517.1% and 528.3% from the same period the prior year to $506 million and $2.89.

Unfavorable Earnings Growth Prospects

The consensus EPS estimates of a negative $1.71 and a negative $1.31 for the quarters ending June and September 2022 indicate a 757.7% and 244.7% year-over-year decrease, respectively. Street EPS estimate for the fiscal year 2022 of a negative $6.89 reflects a decline of 322.7% from the prior year. Moreover, CVNA has missed consensus EPS estimates in three out of the trailing four quarters.

Negative Profit Margins

CVNA’s trailing-12-months gross profit margin of 13.50% is 63% lower than the industry average of 36.51%. Its trailing-12-months net income margin and levered FCF margin of a negative 2.55% and 21.14% are considerably lower than their respective industry averages of 6.52% and 3.39%.

The stock’s trailing-12-months ROE, ROTC, and ROA of negative 161.35%, 5.50%, and 4.73% compare to their respective industry averages of 17.42%, 7.34%, and 5.63%.

POWR Ratings Reflect Bleak Prospects

CVNA’s POWR Ratings reflect this 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, with each factor weighted to an optimal degree.

The stock has a Growth and Quality grade of F in sync with its bleak bottom-line growth in the last reported quarter and negative profit margins.

CVNA also has an F grade for Sentiment, consistent with its bleak analysts’ expectations. It also has a Stability grade of F. Its five-year monthly beta of 2.59 justifies this grade.

In the 65-stock Internet industry, it is ranked #63. The industry is rated F.

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

View all the top stocks in the Internet industry here.

Bottom Line

Although the recent insider buying seems to have buoyed the stock, its bleak financials are concerning. Moreover, equity research firm New Constructs expects stocks like CVNA might face cash shortages as the Fed raises interest rates. Also, considering bearish sentiments around the stock, I think the stock 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, Yelp Inc. (YELP - Get Rating), which has an overall A (Strong Buy) rating, and trivago N.V. (TRVG - Get Rating) and Travelzoo (TZOO - Get Rating), which have an overall B (Buy) rating.

CVNA shares were trading at $30.98 per share on Friday afternoon, up $2.34 (+8.17%). Year-to-date, CVNA has declined -86.63%, versus a -17.72% 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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