February 4, 2023

Online used car seller Carvana (CVNA) is reportedly trying to restructure its debt. Now below $5, does the stock deserve a place in your portfolio? Read on to find out….



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Internet shop Carvana Co. (CVNA) operates an e-commerce platform for buying and selling used cars in the United States. The company’s platform enables customers to research, inspect, obtain financing and purchase a vehicle.

According to Bloomberg Law, CVNA speaks with lawyers and investment bankers about options managing its debt burden after facing falling used car prices which caused solvency problems. In addition, high costs led the company to cut 1,500 employees, or 8% of its workforce, last month.

The stock is down 98.1% year-to-date and 82.7% over the past six months to close out the last trading session at $4.32. It is down 38.7% in the past month. It is trading below the 50-day moving average of $10.22 and the 200-day moving average of $41.38.

Here are the factors that could affect CVNA’s performance in the coming months:

Bad bottom line

For the fiscal third quarter ended September 30, CVNA’s net sales and operating income declined 2.7% year over year to $3.39 billion. Net loss attributable to CVNA increased 784.4% from the same quarter last year to $283 million. Net loss per Class A common share increased 602.6% over the same period last year to $2.67.

Weak profitability

CVNA’s 12 month backlog gross profit margin of 10.81% is 69.6% lower than the industry average of 35.58%. The 12-month EBITDA margin and net profit margin of -6.32% and 5.99% are comparable to industry averages of 11.11% and 5.14%, respectively.

The 12-month ROCE, ROTC and ROTA of -264.04%, 10.77% and 9.04% are comparable to the respective industry averages of 12.93%, 6.59% and 4.45%.

Gloomy estimates from analysts

The earnings-per-share consensus estimate of negative $2.14 for the quarter ending December 2022 indicates a 109.8% year-over-year decline. Similarly, the consensus revenue estimate for the same quarter of $3.20 billion reflects a 14.7% decline from the same period last year.

In addition, CVNA has missed consensus earnings per share estimates in all four subsequent quarters. Street EPS estimate for fiscal 2022 of negative $10.07 reflects a 517.8% year-over-year decline.

POWR ratings reflect bleak outlook

CVNAs POWR ratings reflect the company’s bleak outlook. The stock has an overall F rating, which equates to strong selling in our proprietary rating system. The POWR ratings are calculated by considering 118 different factors, each with an optimal weight.

Our proprietary rating system also evaluates each stock based on eight different categories. CVNA has a stability rating of F, in sync with the five-year beta of 2.31.

The stock also has F-grades for Sentiment and Quality, in line with analysts’ gloomy estimates and poor profitability.

In the 58 stock internet industry, it ranks last. The industry is rated F.

click here to see the additional CVNA (Growth, Value, and Momentum) POWR ratings.

View all the top stocks in the internet industry here.

It boils down

CVNA is currently struggling with a debt burden that could hinder the company’s operations. In addition, the gloomy profitability scenario is worrying. With analysts downgrade the stock recently, CVNA is now best avoided.

How does Carvana Co. (CVNA) turns to his colleagues?

While CVNA has an overall POWR rating of F, one might consider looking at industry peers, Travelzoo (TZOO), trivago N.V. (TRVG), and Yelp Inc. (HAPPILY), which have an overall B rating (Buy).


CVNA shares fell $0.14 (-3.24%) during premarket trading on Thursday. Year-to-date, CVNA is down -98.14%, versus an increase of -17.36% in the benchmark S&P 500 index over the same period.


About the author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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