The Yahoo Finance Live team discusses Wall Street’s bearish sentiment on Carvana and the stocks sharp fall this week.
SEANA SMITH: We know investors are keeping a very close eye on some of these reports. We got to kick it off with Carvana. We’re looking at losses today of about 20%, the selling coming after the company disappointed with its quarterly results, sending shares sliding today, triggering a list of warnings here from analysts. Despite today’s sell-off, though, the stock’s still up over 70% since the start of the year, rebounding from that brutal 98% drop last year.
And, Brad, when you take into account the report that we’re getting out here from Carvana yesterday, certainly a lot of red flags, a lot of it having to do with its mounting debt. It’s going to be very, very tough to navigate what is looking like is going to be a cooling used car market given the fact that consumers are pulling back on their spending. And the Street seems to be a little bit concerned about what the next several quarters potentially are going to look like for Carvana.
BRAD SMITH: Yeah, absolutely. There were a ton of red flags within the report. One of them was certainly the average amount that they’re profiting on each vehicle, and then additionally what consumers are willing to pay right now. You were looking for much of 2022, especially for the front half, at a car market where it was almost cheaper to buy a new vehicle– if you could find one– versus a used vehicle.
And so with that price comparison and the value expectation that a lot of consumers were going into that car market and that purchasing mentality on, the prevailing thought was, OK, why not try and get into that new vehicle where you could get a better ability to not just finance over the longer term, but then additionally what that servicing would look like and the agreements that you would have up front too?
And so Carvana, we had continued to watch the stock over the course of 2022 and now 2023. Don’t believe this bounce to the fullest extent that you’ve seen. And I think there’s still a lot of unanswered questions that this business has to account for and has to give to investors.
SEANA SMITH: Yeah, certainly. And when you look at some of these analyst calls here, JP Morgan saying high debt, suggesting no equity value left in the stock. If Carvana taps into about half of its real estate capacity, that would bring its funds for another year.
RBC slashing its price target, saying that investors will be worried about rising liquidity risk after this report. Second half acceleration seems likely, but they would expect those levels to be modest. So the Street’s certainly pretty apprehensive, pretty hesitant just in terms of what we could potentially see from Carvana here given all of those challenges.