Having almost faced bankruptcy in 2022, Carvana, the online used car marketplace, has rebounded. Its stock has shot up by an incredible 863% in 2023 up to the end of July, an outcome most investors dream of achieving over ten years, let alone in a mere seven months.
The digital car-selling platform recently released two positive quarterly financial statements, signalling its path to recovery. Understandably, this has caught the investor community’s attention, which rapidly elevated its stock value.
Given the current robust drive of both the business and its shares, should one acquire, relinquish, or retain Carvana shares? Let’s delve deeper.
A Glimpse into Carvana’s Current Standing
For Q2, ending June 30, Carvana recorded $3 billion in revenue from the sale of 77,000 vehicles. These figures have dipped by over 20% compared to the previous year, reflecting the broader economic challenges the firm has grappled with.
The net loss reported was $105 million, which is considerably less than that of Q2 2022. The company’s improved financial performance, surpassing Wall Street forecasts, is a significant factor behind its stock’s meteoric rise post-earnings announcement.
One critical indicator of the company’s health is the gross profit per unit (GPU) which analyzes the profit for each car sold. The GPU soared 94% year-over-year to $6,520 in the recent quarter, marking a new high for Carvana.
Moreover, investors received a boost from Carvana’s decision to restructure its debt, cutting it by over $1.2 billion. With the consent of bondholders, Carvana will reduce its interest expenses by over $430 million annually for the coming two years. While this debt reorganization provides Carvana with a buffer against the slowing used car market and consolidates its financial standing, it also underscores the urgency of its financial position, necessitating such immediate measures.
The Investment Perspective
There’s a strong case for investing in Carvana. The enhancement in its financial status, especially regarding its balance sheet, stands out. The business may still be distant from reporting a positive net income, but its resilience against economic challenges chiefly heightened interest rates from 2022, is commendable.
Carvana’s shares have a price-to-sales (P/S) ratio of 0.4, significantly below its average ratio of 1.1. Considering the expansive $1 trillion domestic market for used vehicles, this offers potential growth. However, due to ongoing uncertainties about Carvana’s future, prospective investors might consider starting with a modest stake.
Existing shareholders might decide based on their holding duration. If you’ve made a profit on Carvana shares, selling and realizing those gains could be wise, considering the stock’s volatile journey. Conversely, if you believe in Carvana’s future, especially after its recent financial disclosure, holding onto the shares might reap benefits, potentially turning losses into gains for some investors.
Carvana’s extraordinary rebound in 2023 showcases the unpredictability and potential rewards of the stock market. As with any investment, understanding the nuances of the company, its financial health, and the broader industry trends is crucial. For Carvana, the decision to buy, sell, or hold will be primarily based on an individual’s investment strategy, risk tolerance, and belief in the company’s future trajectory. While the short-term gains are tempting, the long-term vision and industry outlook are equally essential considerations. Diversifying your portfolio and consulting with financial advisors is recommended before making any investment decisions.
