How Carvana went from a top pick on Wall Street to a stock trading meme
Written byTimes Magazine
Carvana CEO Ernie Garcia III regularly tells Wall Street that "the march continues" on the company's mission to become the world's largest and most profitable used car dealer.
Stock prices have risen again this year, just in the wrong direction for investors. In six months, Carvana has gone from being a Wall Street favorite used car dealer poised to cash in on a volatile market to trading as a volatile stock of memes amid cost-cutting and cutting measures.
The Arizona-based used car dealer's weakness, including a nearly 90% drop in its share price since November, resulted from a combination of changing market conditions and self-inflicted injuries. In addition, many traditional traders continue to report record or near-record results, further explaining Carvana's woes.
Carvana grew exponentially during the coronavirus pandemic as shoppers turned to online shopping instead of visiting dealerships, promising seamless selling and buying of used vehicles at customers' homes. However, analysts are concerned about the company's liquidity, growth, and debt growth, which is expected to be the slowest this year since going public in 2017.
"According to the company, it accelerated growth at the wrong time to slow consumers down, creating a huge mismatch between capacity and demand, which has led to a liquidity crunch," Morgan Stanley's Adam Jonas said earlier this month in a notice to investors. The downgrade of the company's rating. Company and lowered its target price from $360 to $105 per share.
The slowdown was due, among other things, to high vehicle prices, rising interest rates, and fears of a recession. Carvana bought a record number of vehicles last year at incredible prices and rising inflation to prepare for unprecedented demand that has since slowed.
Analysts say Carvana is far from over but may have reached its peak. There are concerns about the future of the used vehicle market and the near-term risks that outweigh the potential gains.
"Deteriorating capital market conditions and deteriorating trends in the used car industry have undermined our confidence in Carvana's path to providing the capital needed to achieve sufficient size and self-financing status," Stifel's Scott W. Devitt said in a statement last week.
According to analysts compiled by FactSet, Carvana shares are rated "hold" with a target price of $89.30 per share.
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