7. Carvana Co. (NYSE:CVNA)
Number of Mutual Funds: 22
Number of Hedge Fund Investors in Q2 2024: 61
Carvana Co. (NYSE:CVNA) is an internet based used car retailer that enables customers to buy and inspect cars online and then pick them up from its iconic vending machines. Since it is both a traditional company and a new age firm, Carvana Co. (NYSE:CVNA)’s hypothesis is driven by a combination of factors. For starters, the firm has to keep a close eye on its inventory and ensure that it buys only when prices are low and doesn’t sell at the wrong time. Additionally, as Carvana Co. (NYSE:CVNA) is an internet based firm, its margins see greater interest from investors as a lack of a traditional business model enables the firm to unlock lower costs. With used car prices in the US being in constant flux and falling due to a slow automotive industry making new car inventory build up, Carvana Co. (NYSE:CVNA) could see tailwinds in the future if prices stabilize following inventory correction. Lower rates help car sales, and as economic worries have started to dissipate, Carvana Co. (NYSE:CVNA)’s shares have risen by gaining 38% between September and October. However, a weakening credit environment could spell trouble, particularly as Carvana Co. (NYSE:CVNA)’s partner Ally Financial struggles with auto credit. Ally holds receivables from the car retailer and friction between them could reduce Carvana Co. (NYSE:CVNA)’s market impact.
Carvana Co. (NYSE:CVNA)’s management commented on the credit environment during the Q2 2024 earnings call:
“Sure. I think from a demographics perspective, I think, clearly, affordability was impacted pretty heavily over the last couple of years. I think there’s good news there, though. We have seen kind of higher levels of depreciation over the last 1.5 years. I think relative to CPI, car prices are now only probably about 3% higher than they were pre-pandemic. So I think we’ve closed a lot of that gap. Rates are obviously higher. So if you look at payments, payments are still about 10% higher than they were pre-pandemic for a similar car. So there’s probably a little bit of room for that to continue to improve. And that, of course, is impacting the lower end of the demographic spectrum probably more than the higher income end.
But I don’t think there’s anything too notable to call out there. I think we’re just focused on continuing to buy the cars that our customers are demanding on our site, getting those up, getting those reconditioned, delivering them to customers and giving them great experiences. And I think that’s what’s driving our success right now without too much focus on one group or another. From a credit perspective, I think credit clearly was kind of slowly moving back toward pre-pandemic normal after being very good in ’20 and ’21, and then probably crossover was a little bit worse in ’22 and parts of ’23. And I think many lenders ourselves included, started to tighten credit in the fourth quarter of ’23. What we’ve seen so far from that is performance that’s definitely in line with what we would have hoped to see.”
