Carvana’s (CVNA) stock performed well over the past two years as the company focused on profitability instead of growth. It has risen to a high level of $160, its highest since January 2022. This is a 4,000% increase from its lowest point in the past year.
Carvana is now one of the top performing companies in the United States, as it continues to outperform both the S&P 500 index and the Nasdaq 100 index. It has also beaten car retailers such as Vroom, CarMax and AutoNation.
Carvana is also a highly valued name in the auto industry, as its market capitalization has risen to more than $30 billion. It is now bigger than AutoNation which is valued at more than $6 billion and CarMax which has a value of over $12 billion.
Carvana is valued at more than AutoNation Automotive, Penske Automotive and CarMax which have a combined market cap of less that $30 billion.
Carvana’s profits and revenues are lower than those of the other three firms. Carvana’s revenue for the last twelve months (TTM), was over $11.6 billion. Carmax, Penske and AutoNation combined made over $27, 29, 8, and 26 billion dollars.
Carvana is focused on profits
Carvana, along with many other startups, focused for a long period of time on revenue and market share gains.
The company focused on growth and added new locations at the expense to profits. The company grew fast, but also lost a lot of money.
Carvana, by focusing on its growth, also incurred a large amount of debt, particularly after acquiring ADESA USA, in 2022. ADESA, a company in the United States that offers a network of online auction sites, is a part of Carvana.
Its total long-term debt increased from $864 million in 2019, to $5.8 billion by 2022. This spike coincided with a period in which vehicle sales were not very good in the country. This led to fears that it might go bankrupt.
Carvana has made a pivotal shift in its business strategy over the last two years, focusing on profitability instead of growth.
Download Carvana Q2 results
Carvana’s last financial results showed that revenue grew by 15% due to higher vehicle prices. Carvana’s revenue was $3.41 billion, and it sold 101.440 retail sales. Its average revenue per vehicle is about $33,615.
Carvana, on the other hand, sold 107.815 vehicles and generated over $3.3 million in revenue, or $30,620. The company’s non GAAP GPU was $7,344, which is higher than the $7,000 that it made last year.
The company’s management believes there is still room for profitable growth over the next few years. Its adjusted EBITDA is expected to be between $1 billion and $12 billion for the year, up $300 million from 2023.
Value concerns remain
Carvana has been doing well over the last few years, becoming one of the largest vehicle sellers in the United States. It has also started to make a profit, as the management has shifted their focus away from growth at any cost.
S&P 500 has also upgraded the credit rating of the company because it has begun to reduce its debt. These agencies note that this company is in an excellent position to repay its debt. The company’s stock can support this debt repayment.
The company raised $350m in equity and repurchased 250 million dollars of senior secured notes during the last quarter. It hopes to achieve a healthy adjusted EBITDA.
Carvana’s valuation is still below its all-time peak of $60 billion, which is a cause for concern.
Carvana’s revenue is expected to reach $13 billion in this year, and $15 billion by 2025. In most cases, companies like Penske CarMax and Murphy USA have net profit margins of less than 4%.
If Carvana is able to achieve a profit margin in the range of 4%, and its revenue reaches $20 billion by 2026, it will earn a profit of $880 million. These numbers indicate that the company trades at an estimated P/E of 38. This makes it expensive.
Carvana stock analysis
Positively, CVNA shares are on a strong bull-run in the last two years. During this time, the stock has shown a series higher highs and lower lows. It has formed a golden chart pattern, as the 50-weeks and 200-weeks moving averages formed a bullish cross pattern. This pattern usually leads to greater gains.
The stock has also risen over the Fibonacci Retracement of 38.2%. The stock is therefore likely to continue rising, as bulls aim for the key resistance level at $200, which is about 40% higher than the current level, and a few point above the 50% retracement.
This post Carvana Stock Price Has More Upside Despite Stretched Valuation may be modified as new updates unfold.
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