2. Carvana Co. (NYSE:CVNA)
Number of Hedge Fund Holders: 48
Carvana Co. (NYSE:CVNA) is an Arizona-based company that operates an e-commerce platform for buying and selling used cars in the United States. The stock has plummeted about 89% year to date as of July 7, however, analysts, according to Bloomberg, believe that its estimated returns will likely top the Russell 1000 leaderboard. Market experts tell investors to not fret over the almost 90% share price decline, as Carvana Co. (NYSE:CVNA) is due for a 218% rebound.
On July 5, Wedbush analyst Seth Basham reaffirmed an Outperform rating on Carvana Co. (NYSE:CVNA) but lowered the price target on the stock to $50 from $90. The analyst observed that “shares have whipsawed in recent weeks”, including a 31% drop last week as investors were worried about Carvana Co. (NYSE:CVNA)’s liquidity. While the analyst continues to see downside risk to short-term consensus EBITDA estimates due to margin pressure and is revising his estimates, he finds these liquidity concerns unnecessary.
According to Insider Monkey’s database, 48 hedge funds were long Carvana Co. (NYSE:CVNA) in Q1 2022, compared to 56 funds in the prior quarter. Chase Coleman’s Tiger Global Management is the largest shareholder of the company, with 8.5 million shares worth over $1 billion.
Here is what Saga Partners has to say about Carvana Co. (NYSE:CVNA) in its Q1 2022 investor letter:
“I first wrote about Carvana in this 2019 write-up. I initially explained Carvana’s business, superior value proposition compared to the traditional dealership model, attractive unit economics, and how they were uniquely positioned to win the large market opportunity.
Since then, Carvana has by far exceeded even my most optimistic initial expectations. While the company did benefit following COVID in the sense that customers’ willingness to buy and sell cars through an online car dealer accelerated, the operating environment over the last two years has been very challenging. Carvana executed exceedingly well considering the shifting customer demand in what is a logistically intensive operation and what has been a tight inventory environment due to supply chain issues restricting new vehicle production.
Shares have come under pressure following their first quarter results, which reflected larger than expected losses. The quarter was negatively impacted by a combination of COVID-related logistical issues in their network that started towards the end of the fourth quarter as Omicron cases spread. Employee call off rates related to Omicron reached an unprecedented 30% that led to higher costs and supply chain bottlenecks. As less inventory was available due to these problems, it led to less selection and longer delivery times, lowering customer conversion rates.
Additionally, interest rates increased at a historically fast rate during the first quarter which negatively impacted financing gross profits. Carvana originates loans for customers and then sells them to investors at a later date. If interest rates move materially between loan origination and ultimately selling those loans, it can impact the margin Carvana earns on underwriting those loans…” (Click here to see the full text)
