It’s no Wall Street secret, Carvana (CVNA) is in big trouble. A huge debt load, falling vehicle sales and mounting losses against a backdrop of a weakening economy have the company staring over the precipice. The fact the online car retailer might be on the brink of bankruptcy was given credence recently by the news that ten of its biggest lenders, who collectively hold almost $4 billion of the company’s unsecured debt, have decided to work together for a period over potential restructuring talks with the company.
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The result of all the turmoil has been a stock that has shed 98% of its value this year, a remarkable feat even amongst the debris of 2022’s stock market crashes.
The liquidity issues are so severe that Wedbush’s Seth Basham thinks the company could be on borrowed time. “Combined with deteriorating industry and company-specific outlooks, we project CVNA’s committed liquidity resources to run out by early 2024,” the 5-star analyst said.
In its most recent financial statement, the company said it had over $4 billion in liquidity, but Basham says the liquidity resources “appear overstated.” This is because the majority of it is tethered to vehicle inventory and real estate, with both possibly deteriorating in value.
Furthermore, the company is also dealing with the repercussions of acquiring used car auction business ADESA, which is “an albatross around its neck, not only adding $336m of incremental annual interest expense but also saddling the company with additional reconditioning capacity that it does not need at this point in time.”
In the months ahead, Basham thinks “some form of cash infusion” is likely, however, Basham is uncertain that will do the trick. “Whether that is enough for CVNA’s equity to survive —let alone thrive —well into the future is speculative given deteriorating fundamentals,” the analyst summed up.
To this end, Basham reiterated an Underperform (i.e., Sell) rating on the stock, backed by a $1 price target. This suggests the shares will fall another 77% from here. (To watch Basham’s track record, click here)
Basham is the Street’s biggest CVNA bear, while others take a more optimistic view; one other analyst recommends walking away but with an additional 14 Holds and 2 Buys, the stock claims a Hold consensus rating. (See Carvana stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
