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to say that Carvana (NYSE:CVNA) To say that shareholders have found themselves in a difficult situation would be an understatement. The online used car retailer has seen its stock price soar in its first four years since entering the public market in 2017, reaching its $31 billion market capitalization in August 2021. However, macroeconomic headwinds starting in 2022 crushed the business, and the auto industry also took a hit. retail inventory Crater-shaped. From 2022 to 2023, the stock price fell 77%.
But new hope was born. Carvana’s stock price soared 800% from February 27, 2023 to February 27, 2024, following strong financial results.
Is it time to buy this stock?
Looking at the latest numbers
On February 22, Carvana reported revenue and sales for the last three months of 2023 of $2.4 billion (down 15% year over year) and sales of 76,000 cars (down 13%). Both numbers were below Wall Street expectations. And the company’s trading volume has now declined for the second year in a row.
But Carvana impressed shareholders in another important area. The business is thoroughly focused on cost reduction, with full-year selling, general and administrative expenses expected to decrease by 34% in 2023. “Right-sizing” business operations is a focus for management.
Efficiency has helped Carvana achieve financial milestones.I made a positive post Net income It will reach $150 million in 2023, and bullish investors will be thrilled. This came after the company reported a net loss of $2.9 billion in 2022.
Looking forward, management expects retail volumes to increase in the first quarter and for the full year of 2024 compared to the same period last year. Investors were excited.
Staring at the huge market
Carvana’s goal remains the same: to completely disrupt the way people buy and sell cars. Although the past few years have been volatile, the company’s addressable market remains huge. Last year, 36 million used cars were sold in the United States. The industry is also highly fragmented.
Businesses that can improve the user experience can win customers. Carvana stands out because it focuses on providing shoppers with a fast, convenient, and transparent way to buy and sell vehicles.
At the same time, the company has historically invested aggressively to expand its logistics footprint, which hasn’t come cheap, especially when trying to build a vertically integrated organization. However, management understands the runway expansion and wants to develop scale advantages that justify large capital expenditures.
It’s worth pointing out that at the end of 2023, Carvana was available in 316 markets across the United States, which was exactly the same number as 12 months ago. Therefore, in order for management to put the company in a better financial position, growth plans should be completely stopped. Of course, this is not the right strategy for the business in the long run, as shareholders begin to demand progress towards expansion.
It will be important for investors to pay close attention to how management strikes the right balance between growth and profitability in the coming years.
High risk, high return
As of this writing, Carvana’s stock price is 78% below its all-time high from nearly two and a half years ago. They are, Price to sales ratio This is slightly above the historical average of 1.2. This comes after the stock price rebounded sharply.
However, Carvana remains a very risky investment opportunity, so don’t rush to buy up the stock just yet.
To its credit, the company has made impressive progress in controlling costs, but growth has completely stalled. This shows how sensitive Carvana is to macro factors. The current $5.5 billion long-term debt burden does not help the situation either. Investors always have to worry about what direction the economy is heading. If there is an economic downturn, businesses will definitely be in trouble.
This stock has a lot of upside, but the downside can’t be ignored either. That’s why I’m not a buyer today.
Should you invest $1,000 in Carvana right now?
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Neil Patel and his clients have no positions in any stocks mentioned. The Motley Fool has no position in any stocks mentioned. The Motley Fool has a disclosure policy.
Is it time to buy Carvana stock, which has soared 800% in the past 12 months? Originally published by The Motley Fool
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