Amid increasing fears of a recession and falling used car prices, online used car dealer Carvana Co. (CVNA) posted weaker-than-expected third-quarter earnings.
Moreover, the company laid off 1,500 employees as it was facing a "cash crunch" due to its high debt burden and rising interest rates. Bank of America analyst Nat Schindler recently cut his price target of the stock to $10 from $43 and lowered his rating from “buy” to “neutral.”
On top of it, in September, Levi & Korsinsky, LLP notified CVNA’s investors of a class action securities lawsuit to recover losses on behalf of CVNA’s investors adversely affected by alleged securities fraud between May 6, 2020, and June 24, 2022.
The stock has declined 97% over the past year and 96.5% year-to-date to close its last trading session at $8.13. Moreover, it is trading lower than its 50-day moving average of $14.75 and its 200-day moving average of $49.42, indicating a downturn.
Here are the factors that could influence CVNA’s performance in the near term:
Bleak Analyst Estimates
The consensus EPS estimate of negative $2.52 for the fiscal fourth quarter ending December 2022 indicates a 147.1% decline year-over-year. The consensus revenue estimate of $3.17 billion represents a 15.4% fall from the prior year's quarter.
CVNA’s EPS is estimated to decrease 509.8% year-over-year to negative $9.94 in the current fiscal year ending December 2022. On top of it, the stock has failed to surpass EPS estimates in all four trailing quarters.
Weak Bottom Line
For the fiscal third quarter that ended September 30, CVNA’s net sales and operating revenues declined 2.7% year-over-year to $3.39 billion. Its net loss rose 784.4% year-over-year to $283 million, while its loss per share grew 602.6% year-over-year to $2.67. Moreover, its gross profit decreased 31.4% from its prior-year quarter to $359 million.
Poor Profitability
CVNA’s trailing 12-month gross profit margin of 10.81 is 69.8% lower than the industry average of 35.78%. Its trailing-12-month net income margin of negative 5.99% compares to the industry average of 5.12%. Its trailing 12-month levered FCF margin of negative 10.99% compares to the 1.37% industry average.
Similarly, its trailing-12-month ROCE, ROTC, and ROTA of negative 264.04%, 10.77%, and 9.04% compare to their respective industry averages of 13%, 6.59%, and 4.38%.
POWR Rating Reflect Bleak Prospects
CVNA’s POWR Ratings reflect the company’s 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 factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CVNA has an F grade for Quality, consistent with its lower-than-industry profitability margins. Its F grade for Stability is in sync with its beta of 3.05.
The stock has an F grade for Sentiment, consistent with its unfavorable analyst estimates. Moreover, CVNA’s D grade in Growth reflects its widening losses.
Among the 59-stock in the F-rated Internet industry, CVNA is ranked last.
Click here for the additional POWR Ratings for CVNA (Momentum and Value).
View all the top stocks in the Internet industry here.
Bottom Line
The company’s bottom line losses widened significantly in the last reported quarter. Moreover, the company’s low profitability might make investors anxious. As the stock is trading below its moving averages, CVNA might be best avoided now.
How Does Carvana Co. (CVNA) Stack up Against Its Peers?
While CVNA has an overall POWR Rating of F, check out its industry peers, trivago N.V. (TRVG), Yelp Inc. (YELP), and Travelzoo (TZOO), which have an overall B (Buy) rating.
CVNA shares were trading at $7.88 per share on Friday afternoon, down $0.25 (-3.08%). Year-to-date, CVNA has declined -96.60%, versus a -13.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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