Sign InCarvana Co. (CVNA) Shows Promising Performance Despite Concerns, Making It a 'Hold'
Summary
Carvana Co. (CVNA) experienced a steep decline in its stock price, but its Q2 financial performance surpassed expectations, and the CEO refuted bankruptcy rumors, leading to a positive outlook for the company; however, the stock is overbought and may experience some price corrections in the short term. (Analysis date: July 20, 2023)
Fundamental Analysis
Carvana Co. (CVNA) is traded on the NYSE and as of July 20, 2023, the market cap stands at $8.30 billion. A steep decline of -16.25% was recorded on the last trading day, resulting in a closing price of $46.73. The price range on the closing day was between $45.11 and $57.19. The year-to-date performance shows a high of $58.05 and a staggering low of $3.55, indicating potentially high volatility in the stock. The volume movement is also considerable with 45.40 million shares traded versus an average volume of 30.39 million shares.
Unfortunately, the earnings per share (EPS) indicated an unsettling trend with a negative value of -4.184, which corresponds with a negative price to earnings ratio of -11.17. This implies that the company is operating at a loss, which should prompt caution for potential investors.
From a fundamental perspective, the company's Q2 financial performance surpassed expectations in terms of adjusted EBITDA. According to news sentiments, the CEO refuted rumors of bankruptcy, stating that the company was in better shape than perceived. This statement lines up with the company's impressive year overwrite that saw its stock price soaring by over 1,000% to more than $47 per share.
Technical Analysis
Technical indicators show a 50-day moving average of $21.62 and a 200-day moving average of $12.52, suggesting a strong upward trend in the short to medium term. Carvana's RSI14 stands at 72, indicating a possibly overbought situation that may induce a price correction.
The MACD(3-month) value at 4.38, which is a difference between the short-term exponential moving average and long-term moving average, shows a positive trend.
Strong resistance level can be anticipated at the year high of $58.05, while the next support level could be around the last low of $45.11.
Stock Price Prediction and Final Evaluation
Predicting the closing price for the next trading day, July 21, 2023 and the upcoming week relies on both fundamental and technical aspects. The discounted cash flow (DCF) method anticipates a price of $51.03. Though the company had reported higher-than-expected Q2 earnings, the drop in the stock price on the last trading day following analysts' reactions may result in a slight correction before it resumes upward movement.
Lastly, when evaluating the stock based on all the factors above, Carvana Co. (CVNA) is a 'Hold'. Despite the volatility and the concerns about negative EPS and PE ratio, the company has shown promising performance and has effectively dismissed bankruptcy rumors. The technical analysis shows an ongoing bullish trend while the recent drop in price provides a potentially profitable entry point for long-term investors. However, given the overbought nature of the stock, some minor price corrections may be expected in the short term. The relatively high DCF and strong resistance level also suggests limiting new purchases until clearer signs of stability are observed.
