Carvana – Buy

Carvana (CVNA)

Next up, we have Carvana, a used-car dealer with a difference. The company has a unique approach to the experience of buying a used-car, making the whole process digital.

Buyers can browse through a list of used vehicles, purchase a car online, and a company driver will deliver it to their doorstep, a service available in most places across the US. But by using artificial intelligence and machine learning, the platform provides various other advantages, such as monitoring used car auctions, pinpointing the best-selling vehicles and making sure they are in supply.

The digital approach resulted in strong growth during the corona crisis as consumers’ buying habits changed and was on evidence again in the latest financial report.

Revenue increased by 104.9% year-over-year to reach $3.75 billion, in turn beating the Street’s call of $3.51 billion. That said, EPS of -$1.02 fell short of the consensus estimate of -$0.87.

The current environment, however, has been inhospitable for unprofitable growth stocks which blossomed during the pandemic, and there are concerns the growth will moderate, while there have also been some worries regarding liquidity. As a result, CVNA’s share price shed 67% off its value since peaking last August.

However, Morgan Stanley’s Adam Jonas is a big fan and thinks the pullback offers an excellent entry point, comparing the company to Tesla, which has proved the many doubters wrong.

“We pound the table on CVNA right now and see it as offering one of the strongest bull/bear skews of any stock under our coverage… Over the past 18 months, Carvana experienced unusually high growth, in part due to changing consumer behavior during the pandemic,” Jonas opined.

We think the market is too bearish on Carvana’s long term growth, liquidity and the rationale of the ADESA acquisition. In our view, CVNA is a best-in class auto retailer, strong management, sufficient liquidity and institutional ballast. The set-up reminds us of Tesla in 2019,” the analyst added.

Accordingly, Jonas has an Overweight (i.e. Buy) rating for CVNA stock, while his $360 price target suggests shares will climb by 200% over the one-year timeframe.

So, that’s Morgan Stanley’s view, let’s take a look now at what the rest of the Street has in mind for CVNA. Based on 12 Buys and 6 Holds, the analyst consensus rates the stock a Moderate Buy. With an average price target of $217.44, the analysts expect shares to appreciate ~83% over the next months.