Shares of the online used car retailer Carvana (NYSE:CVNA) jumped about 25% in after-hours trading after the company delivered its best GPU (Gross Profit per Unit) for the first quarter. Its total adjusted GPU of $4,796 increased 61% year-over-year. This was also the best first-quarter performance in the company’s history.
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The company is benefitting from improvements in sourcing vehicles and higher revenue from unique services like nationwide shipping and home delivery. Also, Carvana expects per-unit reconditioning and inbound transport costs to trend lower due to its continued focus on operating efficiency.
While Carvana’s GPU improved, its sales continued to slide. Its top line declined by 25% to $2.61 billion and missed the analysts’ estimates of $2.64 billion. At the same time, its retail unit sales fell 25% as the company prioritized initiatives to drive profitability.
Besides for the weak sales environment, CVNA’s high debt levels remain a concern. CVNA had a total debt of $8.18 billion at the end of Q1.
Coming out of Q1 earnings, Wells Fargo analyst Zachary Fadem reiterated his Hold recommendation on CVNA stock. While Fadem termed Q1 a positive step, CVNA’s debt burden keeps the analyst sidelined.
What’s the Prediction for CVNA Stock?
CVNA stock has gained about 52% year-to-date as it focuses on driving profitability. However, a weak sales environment and high debt keep analysts sidelined.
It has received two Buy, 14 Hold, and one Sell recommendations for a Hold consensus rating. Meanwhile, analysts’ average price target of $10.67 implies 48.19% upside potential.
