Carvana (CVNA) Shares Vend Big Gains Today On A Piper Sandler Upgrade
4:08 pm Monday, September 12th, 2022
Carvana (CVNA) shares are vending big gains today following an analyst upgrade at Piper Sandler, citing that the used car retailer known for its giant car vending machines is undervalued.
However, with shares trading over 80% down on the year and nearly 90% below record highs from August 2021, perhaps more upgrades will follow as analysts view significant negativity already priced in. Additionally, the stock has been in a consolidation pattern since mid-May, with the $20 mark acting as support over that period.
Short interest is also relatively high, at around 30% of the float, making the stock prone to violent swings, which could quickly move in CVNA’s favor, as we witnessed post-Q2 earnings when shares were halted after surging over 40% shortly after the bell. As a result, given a few notable data points reported by some of CVNA’s peers and some highlights from CVNA in Q2, another favorable swing could be in CVNA’s future.
Along with CVNA delivering a 9% increase in retail units sold yr/yr in Q2, auto dealers also see used car units sold either climbing yr/yr or falling at a much slower rate than new car volumes.
For instance, even though AutoNation (AN) reported a 4% dip in used retail unit volumes in JunQ, new retail unit volumes fell 22%. Meanwhile, Group 1 Automotive (GPI) saw a 10% jump in used vehicle units sold yr/yr in JunQ, while new vehicle units dropped by 6%.
These data points are encouraging for CVNA, given its exclusive offering of used vehicles, which carry a range of price levels for many different incomes. The company also made inroads on its goal of achieving gross profit per unit (GPU) of $4,500 last quarter, expanding the figure by 19% sequentially to $3,368. Also, improving new vehicle production will likely cause used prices to fall, spurring renewed demand from individuals who may have been putting off their used car purchase plans.
Still, the hawkish Federal Reserve and a potential worsening of economic conditions pose a significant risk for CVNA in the medium run. If financing becomes too costly and inflationary forces push used car prices higher, individuals may defer their potential car purchases, hindering CVNA’s GPU goals and path to profitability.
