Carvana is now worth less than $1 billion, far below its $64 billion peak in August 2021
Analysts see a challenging path ahead for Carvana Co.’s stock as bankruptcy fears overwhelm the company’s broader narrative.
Needham’s Chris Pierce downgraded Carvana’s CVNA, +1.81% stock to hold from buy in a Friday note to clients titled: “Confidence is Low on the Path Forward.” In doing so, he removed his prior $20 price target on the stock, which closed Thursday just shy of $5.
“Given Bloomberg reporting that [Carvana] creditors are mobilizing and unifying ahead of a potential bankruptcy filing, we struggle to see a near-term path forward that would get investors excited to own the stock until they see improved execution,” Pierce wrote.
He said that the market may be “implying a near-term bankruptcy filing” even though Carvana has “potential sources of cash” in its vehicle inventories and unpledged real estate.
Whether execution matters very much these days seems to be a topic of debate. Jefferies analyst John Colantuoni, who halved his price target to $5 in a Thursday afternoon note to clients, wrote that “the restructuring process will be the primary determinant of the stock price, with fundamentals as a distant secondary factor.”
The broader industry backdrop is not great for Carvana either. “November auto data underscored continued weakness in used car demand, signs of stabilization in wholesale prices / conversion, and continued improvements in new car inventory,” Colantuoni wrote.
He cut his price target on shares of Vroom Inc. VRM, -1.90% to $1.10 from $1.30, noting that a restructuring for Carvana “could signal a further deterioration in the operating environment for used auto e-commerce.”
It’s been a tough year for pandemic-winner stocks. Shares of Shopify Inc. SHOP, -0.67% and Teladoc Health Inc. TDOC, +0.48% are among those on pace to shed more than 70% of their value in 2022. But Carvana’s declines are in a different realm, with the stock seeing nearly 98% of its value evaporate so far this year.
Carvana was worth as much as $64.36 billion on Aug. 10, 2021, according to Dow Jones Market Data, but its market value has come crashing down to south of $1 billion.
Among other controversies for the stock has been Carvana’s purchase of Adesa’s U.S. physical auction business earlier this year, which a Wedbush analyst in a Wednesday downgrade called “an albatross around its neck, not only adding $336 [million] of incremental annual interest expense due but also saddling the company with additional reconditioning capacity that it does not need.”