1. Carvana Co. (NYSE:CVNA)
3-Month Share Price Gains as of August 15: 291.3%
Number of Hedge Fund Holders: 33
Carvana Co. (NYSE:CVNA) operates an e-commerce platform for the buying and selling of vehicles in the United States. It also provides related value adding services, such as inspection, financing, and warranty solutions. On July 19, Carvana Co. (NYSE:CVNA) reported a Q2 revenue of $2.97 billion, outperforming estimates by $360 million. The company also announced its intent to restructure debt, which would reduce debt by $1.2 billion. Carvana Co. (NYSE:CVNA) might raise $350 million as new stock too.
According to Insider Monkey’s first quarter database, 33 hedge funds were bullish on Carvana Co. (NYSE:CVNA), as opposed to 36 hedge funds from the preceding quarter. Zachary Sternberg and Benjamin Stein’s Spruce House Investment Management was the largest shareholder in the company, with 10 million shares worth $97.9 million.
Kerrisdale Capital said this about Carvana Co. (NYSE:CVNA) in the investor letter:
“We are short shares of Carvana Co. (NYSE:CVNA), a $4bn market cap online platform for buying and selling used cars. Originally hyped up as an innovative disruptor, Carvana is now recognized to be just a poorly run auto retailer struggling under the challenges of a severe industry downturn and the unsustainable burden of $6.5bn in debt. While many have shared concerns over Carvana’s business before, we voice ours at a time when shares have risen 165% in only a month on misguided optimism for profits that amount to little more than buffing the paint job on a totaled car.
Over its history of burning billions of dollars of investor capital to manufacture topline growth, Carvana has never generated sustainable profits or free cash flow. Even during the pandemic, when Carvana was virtually the only online option for scores of desperate car buyers willing to pay any price, the company failed to turn an annual profit. As the prospect of bankruptcy loomed, last year management began slashing costs, shrinking its operations and finessing working capital to try to generate positive free cash flow, and still failed. The company is pursuing a last-ditch attempt to sell markets on a new narrative, but ultimately, the business can’t escape the following reality: 1) whether a small local dealer or a tech-driven online platform, flipping used cars is a tough, capital-intensive business with lousy margins and, 2) any company can grow quickly and take share if run irresponsibly on costs, especially if capital markets are willing to foot the bill. Rather than representing true disruptive change, Carvana is a flawed player, armed with tools no better than the competition it seeks to disrupt and led by a management team which lacks seasoned automotive, operational experience. Carvana didn’t make money even when cars sold themselves, interest rates were low and used car prices were skyrocketing. Today, none of that is true anymore, and the company has no hope but to eventually restructure its massive debt load…” (Click here to read the full text)
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