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Here's Why Carvana Warrants a Bullish Stance at the Moment

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Carvana Co. (CVNA - Free Report) is one of the rising stars in the auto industry that has been witnessing an impressive run on the bourse, of late.
 
Carvana’s shares have surged 135.7% year to date, outperforming the broader industry gain of 55.7%. Also, Carvana currently carries a Zacks Rank #2 (Buy).



A successful investor understands the importance of adding well-performing stocks in the portfolio at the right time. Investors will not regret buying this stock right now because of the below-mentioned positive drivers:

Online Business Model to Drive Bottom Line

Carvana is a leading e-commerce platform for buying and selling used cars. The company’s online business model gives it an additional leverage compared to the traditional car dealers.
 
The company’s integrated e-commerce platform encompasses every aspect of used-car retailing, including online sales, financing, logistics, inspection and repair centers and software development. Thus, Carvana does not have to spend heavily on opening a new physical dealership in just one market like traditional car sellers. The company, instead, has a pooled national vehicle inventory, where used cars are brought and prepared for sale. These vehicles are available to any customer within Carvana’s national vehicle delivery network. The company’s easy online shopping process and contactless delivery straight to customers are boosting its sales and profits.  

From a cost standpoint, Carvana's online business model incurs lower variable costs in selling a car. The company has to process and deliver more cars through its existing infrastructure. On the contrary, traditional dealers have to open more dealerships to increase their sales, which in turn, lead to higher variable costs.

Shift to Online Car Purchases

There is an accelerated shift to online car purchases, as consumers are increasingly becoming comfortable in purchasing big-ticket items online amid the coronavirus crisis. Moreover, online car retailers are positioned to thrive not only during the COVID-19 crisis but also in its aftermath amid the shifting shopping patterns of consumers.

Thus, with consumers shifting to e-commerce for buying cars, Carvana’s shares have been skyrocketing since April.

Rising Used Vehicle Demand

Owing to the coronavirus-induced fears, public transportation or ride-hailing services will be avoided in the near term. Also, amid economic slowdown concerns, consumers are getting more inclined toward used vehicles rather than splurging on new cars.  As such, sales of used vehicles have held up better than new cars.

The used-car market in the Unites States is more than twice the size of the new-car segment and is outpacing it in growth. The number of used car transactions in the United States was roughly 40 million last year — making it one of the largest addressable markets across the globe. This reflects that Carvana, a used-car online retailer, is well poised to grow, if it keeps magnifying its reach, in turn, buoying the company’s top line.

Enhanced Shopping Experience

Carvana has managed to differentiate itself from other dealerships through the nine-storey trademark car vending machines. The company’s next-day delivery in many markets, and a seven-day money-back guarantee to help ease concerns about buying online enhance customers’ faith and shopping experience. Moreover, its broad inventory of vehicles offers wide selection options. These measures are transforming the shopping experience for buyers and driving the company’s top-line growth.

Stellar Q3 Results Anticipated

The Arizona-based used-car retailer recently announced that it expects record revenue and retail sales in third-quarter 2020 on a strong rebound in vehicle demand in the United States, following the relaxation in lockdown restrictions. The firm expects to reach EBITDA break-even in the to-be-reported quarter.

Other Key Picks

Other top-ranked auto retailer companies in the auto space include Lithia Motors (LAD - Free Report) , Group 1 Automotive (GPI - Free Report) and Sonic Automotive (SAH - Free Report) . Lithia Motors and Group 1 Automotive currently flaunt a Zacks Rank of 1 (Strong Buy), while Sonic Automotive carries a Zacks Rank of 2, at present.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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