1. Carvana Co. (NYSE:CVNA)
Former Value of D1 Capital Partners‘ 13F Position: $976 million
Number of Hedge Fund Shareholders: 48
One of the 10 Most Shorted Stocks to Watch in June, Carvana Co. (NYSE:CVNA) also hit a three-year low in terms of ownership among hedge funds during Q1, with Daniel Sundheim’s firm again featuring prominently among the sellers. D1 Capital sold off its entire stake of 4.21 million CVNA shares valued at close to $1 billion, axing the position that was its third-largest on December 31.
Carvana Co. (NYSE:CVNA) shares have been one of the worst performers of 2022, shedding 89% of their value. Short seller Marc Cohodes suggested that there was major trouble at the company given a LevFin Insights report that showed Carvana did not sell any securitized subprime loans on the ABS market in Q2, which could suggest liquidity concerns.
Wedbush analyst Seth Basham lowered his price target on the stock to $50 from $90 this month, but noted that liquidity concerns were completely unfounded, stating that the company may have simply chosen to sell its originated auto loans to Ally Bank as part of their ongoing forward flow agreement.
Here is what Saga Partners had 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)
For more on the latest trades made by some of the biggest hedge fund managers in the world, check out 10 Dividend Stocks to Buy According to Kenneth Tropin’s Graham Capital Management and Top 10 Canadian Dividend Aristocrats to Buy Now.
Disclosure: None.
