Stock Analysis & Ideas

From $400 to $4: The Story of Carvana

Story Highlights

It was like a 20-car pileup when Carvana stock fell over 40% in a single trading session. The driver of this horrendous share-price move was, oddly enough, actions by Carvana’s creditors to potentially save the company – along with the harsh words of a respected analyst.

In case Carvana (NYSE: CVNA) investors weren’t already having a rough 2022, they got another shock when the share price plunged nearly 43% on Wednesday, marking the stock’s worst day ever. As you might imagine, the trading volume was heavy, and the selling was intense. In addition, there’s a buzz about the dreaded “b”-word as Carvana struggles to survive as a “going concern.”

Carvana operates an online portal to buy and sell used vehicles. It’s among the most famous names in this niche market, but business hasn’t been robust for Carvana. This is due to inflationary headwinds, interest-rate hikes that make auto loans less appealing, and of course, the used-car market that topped out and is now rolling over.

These factors have placed tremendous pressure on Carvana during the past 12 months. Even so, CVNA stock has collapsed from a mind-blowing peak of more than $360 in 2021 to just $6 and change on Tuesday, followed by $3 and change after Wednesday’s debacle.

“Fall from grace” doesn’t even adequately describe Carvana’s decline from promising market darling to pariah. It’s a phenomenon we’ve witnessed repeatedly: meme stocks, electric vehicle start-ups, plant-based diet food companies, cannabis producers, SPACs, you name it. The Carvana disaster, it seems, is another lesson about what can happen when overeager investors chase parabolic price moves during a hype cycle.

Carvana Creditors Reach a Deal

So, what caused CNVA stock to tumble 43% in a day? It should be considered good news, on the surface at least, that Carvana’s largest creditors are working together to potentially help the company. Specifically, creditors signed a deal to “prevent creditor fights that have complicated other debt restructurings in recent years,” according to a Bloomberg report.

Is this actually positive news, though? Wedbush analyst Seth Basham doesn’t seem to think so, as he cut his price target on Carvana stock to just $1 and downgraded it to an Underperform rating. Apparently, the fact that Carvana’s creditors are teaming up to potentially restructure the company’s debt suggests that Carvana may be in danger of the “b”-word: bankruptcy.

“These developments indicate a higher likelihood of debt restructuring that could leave the equity worthless in a bankruptcy scenario or highly diluted in a best case,” Basham explained. Clearly, the Wedbush analyst doesn’t envision Carvana emerging fully intact from the financial wreckage.

What is the Price Target for Carvana Stock?

CVNA has a Hold consensus rating based on four Buys, 12 Holds, and two Sells assigned in the past three months. The average Carvana stock price target of $25.54 implies over 460% upside potential – though these data points could change dramatically in the near future.

Conclusion: Carvana Stock Could Fall Further

It’s hard to imagine how Carvana and its stakeholders could prosper in the near future. The SEC might get involved, and it’s somewhat surprising that regulators haven’t intervened already. Basham’s $1 price target could become a self-fulfilling prophecy if enough investors dump their shares. All in all, CVNA stock is a dangerous trade – and another example of a retail traders’ favorite gone wrong.


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