1. Carvana Co. (NYSE:CVNA)
Number of Hedge Fund Holders: 43
Carvana Co. (NYSE:CVNA) is an innovative e-commerce platform that facilitates users to buy and sell used vehicles in the United States. What sets the company apart from traditional e-commerce platforms is its ability to leverage technology to enhance user experience. Users of Carvana Co. can research, identify, and inspect the vehicle using a patented 360-degree imaging technology, which essentially gives you a virtual tour of your car. The company also provides financing and warranties on used vehicles and offers scheduled vehicle delivery or pick-up services. Customers can go through a pool of more than 30,000 vehicles at the company’s website and also visit 50-plus auction sites in the US to buy or sell their vehicles.
Carvana Co. (NYSE:CVNA) posted a successful second quarter of 2024 as one of the fastest-growing and profitable automotive retailers in the US. The retail units sold during the quarter increased by 33% year-over-year, reaching 101,440 units, thereby dictating strong customer demand amidst challenging market conditions. The increased retail units sold resulted in the revenue growing by 15% year over year to $3.41 billion. The company also achieved new profitability milestones and reported net income of $48 million and margins of 1.4%. Carvana Co. (NYSE:CVNA) is also focusing on reducing its operating cost and subsequently decreased its SG&A per retail unit sold by $400 and generated a record GAAP operating income of $259 million. The full-year guidance for the company remains positive with adjusted EBITDA between $1 billion to $1.2 billion, indicating a significant increase from last year.
Should you invest in Carvana Co. (NYSE:CVNA)? Here’s the conclusion:
Carvana Co. (NYSE:CVNA) has demonstrated strong performance during the quarter. The company’s revenue has grown at a compound annual growth rate of 33% over the last 5 years. Money managers are bullish on the stock. It was held by 43 hedge funds during Q1 2024 with total stakes worth $3.33 billion. Moreover, 22 analysts hold a consensus Buy opinion on the stock and their median price target of $150 represents an upside of 8% from current levels.
Saga Partners made the following comment about Carvana Co. (NYSE:CVNA) in its second half 2022 investor letter:
I have discussed Carvana Co. (NYSE:CVNA) several times since we first purchased it in 2019 but want to provide an update given the stock’s decline and negative headlines. Historically, Carvana has grown gross profits at a faster rate than operating costs. In 2021, Carvana grew retail unit volumes 74% to over 400,000 cars to become the second largest used car dealer after CarMax. Carvana reached $1.9 billion in gross profits, EBITDA breakeven, and expectations entering 2022 were for continued unit volume growth and scale operating costs.
Similar to Redfin, Carvana has been impacted by pretty extreme industry disruptions/volatility. Supply chain bottlenecks restricted new car production and caused prices to rise. When combined with higher interest rates, car affordability declined and used car volumes crashed
Carvana plans and hires for expected capacity 6-12 months into the future. Entering 2022 the Company expected to grow unit volumes in the ~30% range year-over-year and therefore faced a cost structure far too high for the retail unit volumes experienced. Since demand has come in below expectations, management is now pursuing cost cuts to get back to EBITDA breakeven…
While we acknowledge the potential of Carvana Co. (NYSE:CVNA) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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