Carvana Co. (CVNA) initially saw steady growth in 2021, though in recent months has faced a considerable decline. The company narrowly outperformed the S&P 500, and quarterly results had hedge funds selling during the fourth quarter. However, Carvana rose on the WhaleWisdom Index to a ranking of one from thirty-two. Carvana’s stock rose by approximately 35.8% through early February 2022, compared to the S&P’s gain of about 29.1%.
Carvana operates an e-commerce platform for buying and selling used cars. The company thrived during much of the coronavirus pandemic, benefitting from increased demand for used cars at a time when supply chain disruptions from the pandemic hindered the production of new automobiles. Carvana not only provides a wide selection of vehicles, but its platform allows consumers to obtain financing. Pandemic-related government stimulus checks were also helpful for many customers to facilitate down payments on their vehicles. Additionally, Carvana’s e-commerce approach of touchless delivery of vehicles to each customer’s home has had great appeal during a time of social distancing.
Reduced supply and surging car prices affect the company like a double-edged sword despite heightened demand for used vehicles. Consumers may be paying more, but Carvana’s costs also rose. Carvana employs strategic marketing initiatives and good customer support, including a recent Super Bowl ad, to promote their user-friendly car buying process that results in happy customers.
Hedge Funds Are Selling
Reviewing fourth quarter activity by hedge funds, the aggregate 13F shared held decreased to about 38.5 million from 39.5 million, an overall decrease of approximately 2.6%. Of the hedge funds, 22 created new positions, 44 added to an existing holding, 36 exited, and 34 reduced their stakes. In contrast, institutions increased their aggregate holdings by about 8.6%, to approximately 104.5 million from 96.2 million.
Mixed Multi-Year Estimates
Carvana has a projected decline in earnings for 2022, with a loss of -$1.22 per share. Revenue growth projections could bring revenue to $16.3 billion by December 2022, up from $12.6 billion for December 2021. A review of 13F metrics shows that funds held have been reasonably steady over the past year while the stock price fluctuated. Metrics between 2017 and 2022 demonstrate that while Carvana’s stock may be down at this time, it still shows long-term gains.
Analysts Lower Price Targets
The e-commerce retailer is seen as a Buy by many analysts; however, analysts such as Adam Jonas from Morgan Stanley view the stock as oversold and give it an Overweight rating. Jonas set a price target of $430 for the stock while noting that Carvana remains an apex predator in automotive retail. Analyst Nat Schindler of Bank of America lowered the firm’s price target on Carvana to $320 from $420 and kept a Buy rating on shares. Truist Securities analyst Naved Khan also maintained a Buy rating on shares and lowered the firm’s price target to $300 from $390. Stifel analyst Scott Devitt kept a Buy rating on Carvana’s shares and lowered the firm’s price target to $220 from $40.
Fair Outlook
Carvana’s recent loss of traction can’t be ignored, but as vehicle supply rebounds and consumer demand continues to be strong, there is good potential for growth. Analysts appear optimistic about the stock’s future potential in the automotive retail market, seen by a trend of Buy ratings. Future revenue estimates should be encouraging to investors.