Online retailer of used cars, Carvana Co. (CVNA) has seen its market capitalization eroded by nearly 91.3% so far in 2022, and the stock price is hovering just shy of its 52-week low. This change of fortune, caused by heavy debt, declining demand, and cost pressures, is in sharp contrast to the nearly seven-fold price rise it witnessed during the pandemic era.
To aggravate shareholder pain further, the stock currently has a nearly 31% short interest and just two days ago, Stephens analyst Daniel Imbro slashed the stock’s price target.
Imbro reiterated a Hold rating on the stock while decreasing the price target to $38 from $100. The analyst has decreased earnings forecasts for Carvana owing to demand headwinds and its debt-laden ADESA transaction. Furthermore, Imbro expects the stock to remain rangebound until demand metrics improve.
Last month, Carvana’s top brass laid out three priorities in a plan to address concerns. This includes boosting retail units and revenue; improving gross margin per unit; and achieving operating leverage. It is aiming to lower selling, general and administrative (SG&A) expenses by taking a number of steps that also include lowering headcount (12% of its workforce). Additionally, the debt-laden $2.2 billion acquisition of ADESA also remains a concern.
Insiders Are Sticking With Carvana
Despite this barrage of challenges, insiders continue to acquire the stock. Yesterday, Ernest Garcia, who owns over a 10% stake in the company, bought Carvana shares worth around $42 million. This informative Buy indicates a Very Positive insider confidence signal for the company.
Overall, insiders have acquired shares worth $614.4 million in the last three months, which is a sizable chunk compared to its current $4.02 billion market capitalization.
Closing Note
Carvana has a plethora of challenges ahead of it. While navigating them may be an uphill task, the positive moves by top insiders should help shore up investor sentiment in the stock. Ultimately, the trajectory of the share price which is prone to wild gyrations would hinge on the company’s ability to improve fundamentals.
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