Sign InCarvana's Turbulent Trading & Poor Fundamentals Call for Investor Caution
Summary
Carvana Co. saw turbulent trading with a decrease in stock price, negative earnings per share, and potential red flags, leading the analyst to recommend existing investors to 'Hold' and advise new investors to monitor the stock closely before making a move. (Analysis date: July 17, 2023)
Introduction
Carvana Co. (CVNA), an online used-car retailer based in the US, saw turbulent trading recently with the last close at $36.53 on July 17th, 2023, a decrease of $-1.17 (-3.10%) compared to the previous trading day. The NYSE-listed equity had a high of $39.9 and a low of $36.19 for the day, with a total volume of 20.90 million shares being traded.
Fundamental Analysis
CVNA displays a negative Earnings Per Share (EPS) of $-4.18, rendering a negative Price to Earnings ratio (P/E) of -8.73, which indicates a poor profitability scenario. Moreover, while a market cap of $6.49 billion structures Carvana as a mid-sized company, the negative earnings report could invoke caution among potential investors.
Moreover, the company’s stocks appear to have a year-low and a year-high at $3.55 and $58.05 respectively, suggesting a significant volatility in the investment, which might pose a considerable risk. With an outstanding shares count of 177.60 million, the drastic price differences show notable fluctuations in investor confidence.
Recent news headlines about Carvana highlight a few points of concern like probable cash burn and potential wrong-handlings with a former vendor. This negative commentary blurs the fundamentals of the company and can lead to a pessimistic investment environment.
Technical Analysis
Technical indicators present a mixed outlook for CVNA. The equity's 50-day moving average clocks in at $19.44, far below the recent closing price, which, along with a high Relative Strength Index (RSI) of 78, can be interpreted as overbought conditions and potential retraction.
However, the 200-day moving average of $12.23 signals a long-term bullish outlook, supported by a positive 3-month Moving Average Convergence Divergence (MACD) of 3.51, indicating a sustained upswing.
The average volume of Carvana shares is around 27.83 million, with the last trading day's volume falling short of this figure by about 7 million shares, signaling diminished interest.
Looking at the target predictions, the company has a massive gap between its high ($470) and low ($5) targets, which shows great uncertainty, despite its consensus and median targets being much higher at $111.26 and $73 respectively.
Price Predictions
Considering the Discounted Cash Flow (DCF) value of $40.83 obtained via the analysis, it's fair to anticipate the stock at around this price point in the upcoming week, considering stable trading conditions.
For the immediate next trading day, i.e., July 18, 2023, the price could witness a corrective phase due to the overbought conditions. Nevertheless, the long-term moving averages and the positive MACD suggest that the overall advanced trend is still to the upside, and any downturns may be an opportunity for investors to 'Buy the Dip'.
Conclusion: HOLD
Based on the analysis, with heavy consideration placed upon the current turbulent news environment surrounding Carvana, and contradicting technical indicators showing both overbought conditions and a bullish long-term trend, the analyst determines that the best course of action would be to ‘Hold’ for existing investors.
This recommendation is made with an understanding that the company has several potential pitfalls and red flags that could either be buying opportunities or warnings of a downfall. New investors are advised to monitor the stock closely and potentially seek more stabilized fundamentals, coherent news flows, and less contradictive technical patterns before making their move.
