2. Carvana Co. (NYSE:CVNA)
Number of Hedge Fund Investors: 84
Carvana Co. (NYSE:CVNA) is an online marketplace for used car sales and purchases. The company generates revenue through used vehicle sales, wholesale vehicle sales, and other sales and revenues. It claims to have a solid balance sheet and that its distinct focus on online sales has helped it differentiate itself from its competitors and improve its top and bottom lines.
Carvana Co. (NYSE:CVNA) had a great year, reigniting revenue growth to over 20% and producing adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margins of more than 11%—the highest in the industry. The firm is the most profitable and rapidly expanding used automobile retailer, making it a genuinely remarkable business. It only has a 1% market share despite these remarkable accomplishments. The market leader controls more than 10% of the market in the majority of other retail categories, underscoring the company’s significant expansion potential.
BofA maintained its Buy rating on Carvana Co. (NYSE:CVNA) shares and increased its price objective from $252 to $270. The analyst informs investors that although the company fell short of “high expectations” in the fourth quarter, growth is “still solid” and that management provided preliminary remarks on FY25 that indicated “significant growth in both retail units sold and Adj. EBITDA.” The analyst went on to say that CVNA “remains one of the best growth acceleration names in Internet.”
Recurve Capital stated the following regarding Carvana Co. (NYSE:CVNA) in its Q4 2024 investor letter:
“One year is too short a time frame to evaluate anything and we will never be perfect, but overall, nailing Carvana Co. (NYSE:CVNA) mattered much more than anything else.
We assess our portfolio management performance by looking at the breadth of participation across the portfolio and by comparing our actual results to two parallel scenarios: (1) our performance relative to an equal-weight portfolio of the same positions, and (2) our performance relative to the actual portfolio assuming no further trading over the evaluation period. Encouragingly, our actual performance has been better than both alternate scenarios across substantially all evaluation periods. The primary exception is at the end of 2022, when an equal-weight portfolio would have produced better forward returns by having significantly more exposure to Carvana at its record-low prices. These analyses give me comfort that we add value through our active management and optimization of the portfolio.
We care most about portfolio-level returns which largely depend on slugging percentages, but we also know that having a consistent batting average is important. As shown in the chart below, the median position in our portfolio returned +35% in 2024 on a total return basis (including dividends), below our actual performance but nicely above the returns for the major indices. Carvana’s excellent performance in 2024 pulled our actual performance well above the median, but that was our intention given our large position size. We had healthy contributions across the portfolio, but we also benefited from great slugging percentages in 2023 and 2024…” (Click here to read the full text)
