Carvana Stock (NYSE:CVNA)
According to data provided by S&P Global Market Intelligence, Carvana stock fell by as much as 23.7% this week. This week has no company-specific updates from the popular online used-vehicle reseller with auto vending machines. CarMax (KMX), one of its main rivals, has posted low profitability, worrying investors who had been banking on a recovery in the used vehicle market. As of Friday noon EST, Carvana stock has been down 18.2% this week.
What’s the Point Then
Carvana (NYSE:CVNA) is a company that facilitates the buying and selling of previously owned automobiles through mobile devices, with doorstep delivery available. Competitors like CarMax, one of Carvana’s main rivals, also use an omnichannel dealership strategy to sell cars. Regardless, these businesses are vying for the same clientele (people interested in buying used cars).
Thus, it should be no surprise that Carvana stock plummeted when CarMax announced unexpected poor profitability for the second quarter. As a percentage of revenue, CarMax’s quarterly profits per share (EPS) fell 54% to $0.79. Used automobile sales have plummeted because of increasing borrowing rates and high pricing. Despite CarMax’s Q2 market share gains, the number of units sold and the number of cars purchased from customers and dealers fell by 6.4% and 8.1%, respectively, from last year. CarMax’s profits and margins will suffer due to weakening demand, which might cause used vehicle prices to plummet.
As a result, investors anticipate a similar outcome when Carvana (NYSE:CVNA) announces profits later this year. Because of this, the Carvana stock price has dropped significantly this week.
Carvana’s (NYSE:CVNA) already tenuous financial condition has been further exacerbated by the falling demand for its products. The firm has already wasted $850 million in free cash flow this year alone. Carvana, with just $1 billion in cash, urgently has to improve its financial status or face the prospect of seeking further funding from investors. The recent performance of CarMax suggests that things might become significantly worse in the near future, posing a serious danger to Carvana’s bottom line.
Carvana (NYSE:CVNA) may be able to raise loans, but it would add to the enormous amount of debt already on its books. It has $1.1 billion in available short-term revolving credit, $212 million in short-term debt, and $6.6 billion in long-term debt as of the end of the previous quarter. The increasing interest rates and Carvana’s lack of a good track record means the company will likely pay a premium for any fresh funding it secures.
Despite the Carvana stock price decline of 90% year to date, investors should avoid this company for the time being due to its financial instability.
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