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Carvana Adds Over $10B to Market Cap in 2024: Too Late to Buy Stock?
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Used car auto e-retailer Carvana’s (CVNA - Free Report) pivot from an aggressive growth strategy to operational efficiency and cost-cutting has been paying off really well. CVNA stock is having a great time on the bourses. So far in 2024, shares have rocketed 165%, handily outperforming the Auto-Tires-Trucks sector and its close peers like CarMax (KMX - Free Report) , AutoNation (AN - Free Report) , Lithia Motors (LAD - Free Report) and Sonic Automotive (SAH - Free Report) . This rally has added more than $10 billion to Carvana’s market capitalization in 2024 alone.
With such a massive run-up, investors must be wondering if they should lock in profits or buy the stock for more upside potential. Let’s delve into the company’s fundamentals to determine the best course of action.
YTD Share Price Comparison
Image Source: Zacks Investment Research
CVNA Progressing Well on its Three-Step Plan
Carvana’s three-step plan — aimed at driving positive adjusted EBITDA, achieving significant adjusted EBITDA per unit and eventually returning to growth— has been central to its stunning turnaround after teetering on the brink of bankruptcy in 2022.
The company reached a critical milestone by achieving positive adjusted EBITDA in the second quarter of 2023. Several initiatives, including proprietary software development, logistics optimization, and the in-sourcing of third-party services, helped the company to reduce costs and improve profitability.
In the last reported quarter, Carvana’s adjusted EBITDA totaled $355 million, with margins increasing to 10.4% (highest among all the listed US auto retailers), up from 7.7% in the first quarter of 2024 and 5.2% in the year-ago period.For full-year 2024, it forecasts adjusted EBITDA to range between $1 billion and $1.2 billion, suggesting a massive uptick from $339 million last year.
Carvana’s efforts to reduce retail reconditioning and inbound transport costs are driving gains in adjusted total gross profit per unit. In the second quarter of 2024, the metric came in at $7,344, up 4.4% yearly and 8% sequentially.
Carvana’s ability to generate positive free cash flow is another encouraging sign for investors. In the first half of 2024, the company generated $415 million in free cash flow, slightly up from $393 million in the same period the previous year.
Despite economic headwinds such as high interest rates, Carvana has managed to grow its retail unit sales. In second-quarter 2024 alone, it increased its retail units by 33%. With potential rate cuts from the Federal Reserve on the horizon, the demand for used cars could see a further boost, which will bode well for Carvana. The company expects a sequential increase in retail unit sales in the third quarter of 2024. It expects full-year 2024 retail sales units to grow on a yearly basis.
Carvana’s Concerns: High Debt & Pricey Valuation
While Carvana’s operational performance has improved, its balance sheet remains a concern. As of June 30, 2024, Carvana’s long-term debt was $5.43 billion against cash/cash equivalents of $542 million. Its debt-to-capital ratio stands at 0.98 compared with the auto sector’s 0.57. Elevated leverage restricts the firm’s flexibility to tap into growth opportunities.
From a valuation standpoint, CVNA stock is trading at a forward 12-month sales multiple of 1.97, higher than the sector as well as the 5-year median. The stock seems to be overvalued now.
Image Source: Zacks Investment Research
How Should You Play CVNA Stock Now?
Given Carvana's remarkable stock surge in 2024, it may indeed be too late for new investors to buy at these inflated levels. Also, the valuation isn’t appealing at the moment. That said, CVNA’s long-term prospects still remain strong.
Carvana currently has an average brokerage recommendation (ABR) of 2.46 on a scale of 1 to 5 (Strong Buy to Strong Sell), based on 19 ratings. Of those, 12 rate the stock as a Hold.
Image Source: Zacks Investment Research
For those already invested, it might be wise to hold onto the stock as Carvana continues to execute its well-laid plan for profitability. However, new investors may want to wait for a more attractive entry point to reap handsome rewards.
Image: Bigstock
Carvana Adds Over $10B to Market Cap in 2024: Too Late to Buy Stock?
Used car auto e-retailer Carvana’s (CVNA - Free Report) pivot from an aggressive growth strategy to operational efficiency and cost-cutting has been paying off really well. CVNA stock is having a great time on the bourses. So far in 2024, shares have rocketed 165%, handily outperforming the Auto-Tires-Trucks sector and its close peers like CarMax (KMX - Free Report) , AutoNation (AN - Free Report) , Lithia Motors (LAD - Free Report) and Sonic Automotive (SAH - Free Report) . This rally has added more than $10 billion to Carvana’s market capitalization in 2024 alone.
With such a massive run-up, investors must be wondering if they should lock in profits or buy the stock for more upside potential. Let’s delve into the company’s fundamentals to determine the best course of action.
YTD Share Price Comparison
CVNA Progressing Well on its Three-Step Plan
Carvana’s three-step plan — aimed at driving positive adjusted EBITDA, achieving significant adjusted EBITDA per unit and eventually returning to growth— has been central to its stunning turnaround after teetering on the brink of bankruptcy in 2022.
The company reached a critical milestone by achieving positive adjusted EBITDA in the second quarter of 2023. Several initiatives, including proprietary software development, logistics optimization, and the in-sourcing of third-party services, helped the company to reduce costs and improve profitability.
In the last reported quarter, Carvana’s adjusted EBITDA totaled $355 million, with margins increasing to 10.4% (highest among all the listed US auto retailers), up from 7.7% in the first quarter of 2024 and 5.2% in the year-ago period.For full-year 2024, it forecasts adjusted EBITDA to range between $1 billion and $1.2 billion, suggesting a massive uptick from $339 million last year.
Carvana’s efforts to reduce retail reconditioning and inbound transport costs are driving gains in adjusted total gross profit per unit. In the second quarter of 2024, the metric came in at $7,344, up 4.4% yearly and 8% sequentially.
Carvana’s ability to generate positive free cash flow is another encouraging sign for investors. In the first half of 2024, the company generated $415 million in free cash flow, slightly up from $393 million in the same period the previous year.
Despite economic headwinds such as high interest rates, Carvana has managed to grow its retail unit sales. In second-quarter 2024 alone, it increased its retail units by 33%. With potential rate cuts from the Federal Reserve on the horizon, the demand for used cars could see a further boost, which will bode well for Carvana. The company expects a sequential increase in retail unit sales in the third quarter of 2024. It expects full-year 2024 retail sales units to grow on a yearly basis.
Carvana’s Concerns: High Debt & Pricey Valuation
While Carvana’s operational performance has improved, its balance sheet remains a concern. As of June 30, 2024, Carvana’s long-term debt was $5.43 billion against cash/cash equivalents of $542 million. Its debt-to-capital ratio stands at 0.98 compared with the auto sector’s 0.57. Elevated leverage restricts the firm’s flexibility to tap into growth opportunities.
From a valuation standpoint, CVNA stock is trading at a forward 12-month sales multiple of 1.97, higher than the sector as well as the 5-year median. The stock seems to be overvalued now.
Image Source: Zacks Investment Research
How Should You Play CVNA Stock Now?
Given Carvana's remarkable stock surge in 2024, it may indeed be too late for new investors to buy at these inflated levels. Also, the valuation isn’t appealing at the moment. That said, CVNA’s long-term prospects still remain strong.
Carvana currently has an average brokerage recommendation (ABR) of 2.46 on a scale of 1 to 5 (Strong Buy to Strong Sell), based on 19 ratings. Of those, 12 rate the stock as a Hold.
Image Source: Zacks Investment Research
For those already invested, it might be wise to hold onto the stock as Carvana continues to execute its well-laid plan for profitability. However, new investors may want to wait for a more attractive entry point to reap handsome rewards.
CVNA stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.