We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Carvana (CVNA) Jumps 130% YTD: What Should Investors Do Now?
Read MoreHide Full Article
Carvana’s (CVNA - Free Report) comeback story has truly been remarkable. The used car e-retailer that was on the verge of bankruptcy in 2022 has turned heads with its epic turnaround. After plummeting 98% in 2022, Carvana emerged as the top-performing auto stock of 2023. It was the biggest gainer on the Russell 3000 last year. CVNA continues its stellar run on the bourses, with the stock surging around 130% so far this year, outperforming its peers, including CarMax (KMX - Free Report) , AutoNation (AN - Free Report) and Lithia (LAD - Free Report) .
YTD Price Performance
Image Source: Zacks Investment Research
Does Carvana’s impressive rally have legs, or should investors book profits now? Before that, let's take a closer look at the strategic pivot that has spurred the company’s recovery.
CVNA’s Stunning Execution
In the face of rising losses, Carvana shifted its focus from growth to operational efficiency. Its three-step plan — focusing on driving the business to positive adjusted EBITDA, achieving significant adjusted EBITDA per unit, and, subsequently, returning to growth— has been the key to Carvana’s revival.
Carvana achieved the first target of positive adjusted EBITDA in the second quarter of 2023. This stage involved right-sizing staffing, advertising and inventory. It generated positive adjusted EBITDA in the trailing four quarters. In the first quarter of 2024, adjusted EBITDA was $235 million, with a record margin of 7.7%. For the second quarter of 2024, the company expects a sequential rise in adjusted EBITDA. For the full year, it envisions the metric to grow year over year.
The company’s current focus is on driving significant adjusted EBITDA per unit. For that, CVNA is focusing on enhancing operational efficiency across the business, with several technology, process and product initiatives underway.
The company has managed to reduce retail reconditioning and inbound transport cost reductions as a result of fundamental improvements, including in-sourcing third-party services, staffing normalization, process standardization, proprietary software development, logistics network utilization and reduced inbound transport distance. In addition to lower reconditioning and transportation costs, expanded customer sourcing and additional revenue streams from value-added services are also driving retail gross profit per unit gains.
Image Source: Carvana
The final step will concentrate on sustainable, profitable growth, leveraging Carvana’s foothold in the U.S. used vehicle retail market. While the Zacks Consensus Estimate projects a net loss of 34 cents per share for 2024, it indicates a 162% improvement for 2025, with an estimated earnings per share of 21 cents.
Encouragingly, in the first quarter of 2024, retail units sold also returned to growth for the first time since June 2022, rising 16% year over year and 21% sequentially.
Image Source: Carvana
Carvana expects a sequential increase in its year-over-year growth rate of retail unit sales in the second quarter of 2024 as well. It envisions full-year 2024 retail sales units to grow on a yearly basis. The Zacks Consensus Estimate for 2024 revenues implies year-over-year growth of 15%.
So, it does seem that management is pivoting in the right direction, and the company is delivering on its promises. Additionally, a debt restructuring deal in September 2023 helped it to stave off a cash crisis, though the balance sheet remains stretched with high debt levels.
Valuation
It’s important to note that despite the substantial recovery, Carvana's current share price remains significantly below its 2021 peak of $377. As the stock is trading at a considerable discount, should you consider buying it now? From a valuation standpoint, it's trading at a forward 12-month sales multiple of 1.84, close to its 5-year median but way lower than its 5-year high. The company has a Value Score of B.
Image Source: Zacks Investment Research
Resist the Temptation to Cash Out the Gains
Carvana’s comeback is a testament to strategic resilience and adaptability in the face of adversity. The company's focus on operational efficiency, cost management, and a clear, step-wise plan for returning to profitability and growth is praiseworthy.
While Carvana has witnessed triple-digit percentage growth year to date, don’t get enticed to sell the stock in haste to book your profits. Stay invested in the stock if you already own it, as this rally has much more upside potential. As for others, don’t wait for a better entry point and add the stock to your portfolio at the current levels to reap handsome rewards.
Image: Shutterstock
Carvana (CVNA) Jumps 130% YTD: What Should Investors Do Now?
Carvana’s (CVNA - Free Report) comeback story has truly been remarkable. The used car e-retailer that was on the verge of bankruptcy in 2022 has turned heads with its epic turnaround. After plummeting 98% in 2022, Carvana emerged as the top-performing auto stock of 2023. It was the biggest gainer on the Russell 3000 last year. CVNA continues its stellar run on the bourses, with the stock surging around 130% so far this year, outperforming its peers, including CarMax (KMX - Free Report) , AutoNation (AN - Free Report) and Lithia (LAD - Free Report) .
YTD Price Performance
Does Carvana’s impressive rally have legs, or should investors book profits now? Before that, let's take a closer look at the strategic pivot that has spurred the company’s recovery.
CVNA’s Stunning Execution
In the face of rising losses, Carvana shifted its focus from growth to operational efficiency. Its three-step plan — focusing on driving the business to positive adjusted EBITDA, achieving significant adjusted EBITDA per unit, and, subsequently, returning to growth— has been the key to Carvana’s revival.
Carvana achieved the first target of positive adjusted EBITDA in the second quarter of 2023. This stage involved right-sizing staffing, advertising and inventory. It generated positive adjusted EBITDA in the trailing four quarters. In the first quarter of 2024, adjusted EBITDA was $235 million, with a record margin of 7.7%. For the second quarter of 2024, the company expects a sequential rise in adjusted EBITDA. For the full year, it envisions the metric to grow year over year.
The company’s current focus is on driving significant adjusted EBITDA per unit. For that, CVNA is focusing on enhancing operational efficiency across the business, with several technology, process and product initiatives underway.
The company has managed to reduce retail reconditioning and inbound transport cost reductions as a result of fundamental improvements, including in-sourcing third-party services, staffing normalization, process standardization, proprietary software development, logistics network utilization and reduced inbound transport distance. In addition to lower reconditioning and transportation costs, expanded customer sourcing and additional revenue streams from value-added services are also driving retail gross profit per unit gains.
The final step will concentrate on sustainable, profitable growth, leveraging Carvana’s foothold in the U.S. used vehicle retail market. While the Zacks Consensus Estimate projects a net loss of 34 cents per share for 2024, it indicates a 162% improvement for 2025, with an estimated earnings per share of 21 cents.
Encouragingly, in the first quarter of 2024, retail units sold also returned to growth for the first time since June 2022, rising 16% year over year and 21% sequentially.
Image Source: Carvana
Carvana expects a sequential increase in its year-over-year growth rate of retail unit sales in the second quarter of 2024 as well. It envisions full-year 2024 retail sales units to grow on a yearly basis. The Zacks Consensus Estimate for 2024 revenues implies year-over-year growth of 15%.
So, it does seem that management is pivoting in the right direction, and the company is delivering on its promises. Additionally, a debt restructuring deal in September 2023 helped it to stave off a cash crisis, though the balance sheet remains stretched with high debt levels.
Valuation
It’s important to note that despite the substantial recovery, Carvana's current share price remains significantly below its 2021 peak of $377. As the stock is trading at a considerable discount, should you consider buying it now? From a valuation standpoint, it's trading at a forward 12-month sales multiple of 1.84, close to its 5-year median but way lower than its 5-year high. The company has a Value Score of B.
Image Source: Zacks Investment Research
Resist the Temptation to Cash Out the Gains
Carvana’s comeback is a testament to strategic resilience and adaptability in the face of adversity. The company's focus on operational efficiency, cost management, and a clear, step-wise plan for returning to profitability and growth is praiseworthy.
While Carvana has witnessed triple-digit percentage growth year to date, don’t get enticed to sell the stock in haste to book your profits. Stay invested in the stock if you already own it, as this rally has much more upside potential. As for others, don’t wait for a better entry point and add the stock to your portfolio at the current levels to reap handsome rewards.
Carvana currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.