Believe it or not, Carvana (NYSE:CVNA) stock could actually be a good pick for sensible investors and not just meme-stock traders. I honestly never imagined I would say this, but I am bullish on CVNA stock after reading the company’s just-released results and forecast.
Carvana operates an online platform for buying and selling used cars. During the speculative frenzy of 2020 and 2021, it seemed like everybody and their uncle would buy their cars online and that Carvana’s growth as a company would never end.
Reality set in during the less euphoric years of 2022 and 2023, though, and Carvana had to prove its viability as a business venture. Yet, even beyond the meme dreams of an epic short squeeze, there’s data available now to indicate that cautious investors can buy a few Carvana shares without losing sleep at night.
Why Did Carvana Stock Soar Today?
CVNA stock sometimes makes big moves, but it’s not every day that the stock catapults 31% higher. Sure, there’s probably some short covering involved, but there’s more to the story than that.
Yesterday, after the market closed for the day, Carvana released its financial results for the fourth quarter and the full year of 2023. Surely, there must have been something notable in the results and/or forward guidance.
At the very least, we can say that Carvana survived the past couple of years. To quote Carvana CEO Ernie Garcia, “It’s very hard for a group to go through a period like the last two years and not disintegrate under the pressure. We didn’t disintegrate.”
Not only did Carvana not “disintegrate,” but the company actually managed to post its first-ever profitable year in 2023. I’ll bet the short sellers didn’t see that coming. Being income-positive for the year gives Carvana an added sense of legitimacy and viability. Just as a reminder, Carvana endured bankruptcy speculation as recently as December of 2022.
Now, I’m not going to pretend that Carvana’s financial report was spotless. Unfortunately, the company’s fourth-quarter revenue of $2.424 billion was down 15% year-over-year. Furthermore, Freedom Capital Markets analyst Mike Ward observed that Carvana “remains highly leveraged” and expects that Carvana’s “net debt at the end of 2023 at $5 billion [will] likely move higher in 2024 and 2025.”
With that, Ward issued a Sell rating and a pessimistic $26 price target on CVNA stock. That’s harsh, but not every expert on Wall Street is bracing for Carvana to fall under the weight of its own debt.
Is Carvana Stock “Poised for a Further Breakout”?
In contrast to Ward’s scathing assessment, William Blair analyst Sharon Zackfia actually upgraded Carvana stock to a Buy rating. Not only that, but Zackfia stated, “Carvana is now poised for a further breakout as we expect growth in retail units sold to accelerate in coming quarters while generating materially greater profits than expected.”
As for Carvana’s management, they also seem to have fairly optimistic expectations. For the current quarter, Carvana expects “retail units sold slightly up on a year-over-year basis” and “adjusted EBITDA significantly above $100 million.” Moreover, for Fiscal Year 2024, Carvana “expects to grow retail units sold and Adjusted EBITDA compared to FY 2023.”
Okay, so those are vague predictions, but they’re still generally optimistic. Besides, analysts called for Carvana to report FY2024 adjusted EBITDA of around $108 million, so Carvana’s guidance for “significantly above $100 million” sounds like a bright outlook.
Finally, we should circle back to the headline news that Carvana reported a full-year profit. To be more precise, the company recorded net income of $150 million. I’d say this is evidence that Carvana “didn’t disintegrate” — wouldn’t you agree?
As for the fourth quarter in particular, Carvana sold 76,090 retail units and sustained a net loss of $1 per share. That’s a lot better than the company’s net loss of $7.61 per share in the fourth quarter of 2022. The name of the game here is improvement, not perfection.
Is Carvana Stock a Buy, According to Analysts?
On TipRanks, CVNA comes in as a Hold based on one Buy, nine Holds, and four Sell ratings assigned by analysts in the past three months. The average Carvana stock price target is $42.18, implying 39.3% downside potential.
If you’re wondering which analyst you should follow if you want to buy and sell CVNA stock, the most profitable analyst covering the stock (on a one-year timeframe) is Nicholas Jones, CFA of JMP Securities, with an average return of 154.42% per rating and an 85% success rate. Click on the image below to learn more.
Conclusion: Should You Consider Carvana Stock?
Somewhere between Ward’s pessimism and Zackfia’s optimism lies the truth about Carvana. I wouldn’t dare to mortgage my house to buy Carvana stock, but at least there’s hope now that the company can turn a corner in 2024.
Maybe Carvana even turned a corner in 2023, as evidenced by the fact that the company posted a net profit. Therefore, whether there’s a short squeeze in the cards or not, sensible investors might consider a share position in CVNA stock.
