Carvana Co. (CVNA) saw improved performance over the past ten months after a dip in February and March 2020 related to the coronavirus pandemic. Carvana outperformed the S&P 500, rising by approximately 221.6% compared to the S&P’s gain of about 21.8% since the end of 2019. This has helped to propel the stock up to number one on the Whale Wisdom Heat Map, from a previous rank of 24.
Carvana operates an online platform for buying used cars, serving customers throughout the United States. While car sales initially fell at the start of the pandemic as the country went into lockdown, the company has fortunately seen demand recover for its e-commerce style of automobile retail. Factors that may have contributed to Carvana’s strong growth are that many consumers want to spend more conservatively on automobiles when unemployment rates are high. New car inventories are low due to pandemic-related business shutdowns. Carvana offers touchless delivery options that align well with social distancing practices. Buyers don’t need to visit a used car lot, and vehicles are delivered to their homes with friendly return policies. It has worked in Carvana’s favor that transportation trends have temporarily shifted away from public transit during the pandemic and made driving vehicles more appealing. Government stimulus checks have also likely made it easier for consumers to make down payments on cars.
Hedge Funds and Institutions Are Buying
Carvana is enjoying positive actions by hedge fund managers and institutions. Looking at activity by the top hedge funds in the fourth quarter, the aggregate 13F shares held increased to about 40.6 million from 40.4 million, an increase of approximately 0.6%. Of the hedge funds, 40 created new positions, 33 added to existing holdings, 14 exited, and 41 reduced their stakes. With aggregate holdings increasing by about 4.5% to approximately 86.9 million from 83.2 million, institutions were also buying.
Encouraging Multi-year Estimates
Analysts expect to see revenue rise over the next four years, with increases in growth from 2020 to 2023 spanning from approximately 36.3% to 48.3%. This prediction for strong growth could bring revenue to $15.1 billion in 2023, up from $5.4 billion in 2020. Year-over-year estimated increases could also bring earnings to $2.00 per share in 2023.
Analysts See Growth Potential
Wells Fargo & Co. expects considerable growth for Carvana given the recent online auto evolution, and analyst Zachery Fadem sees the company as a leader in growth with continued potential. CFRA Research Co.’s analyst, Garrett Nelson, recently shared mixed views on the used car retailer, noting they have increased competition and don’t include money-making service operations or part sales as part of their business model, yet have an improving gross margin influenced by pandemic trends. CFRA raised its rating on Carvana to Hold from Sell.
Overall, there is a positive outlook for Carvana’s financial future. The company’s impressive growth and future revenue estimates appeal to many investors. While Carvana will have to contend with increased competition from other used car companies, they have great potential for increased revenue. Their business model has aligned well to changing shopping trends and priorities during the pandemic, leaving investors with strong motivations to acquire shares.