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Carvana
stock has soared 1,000% this year, but that hasn’t stopped Wedbush analyst Seth Basham from upgrading its shares. Unfortunately, early gains have turned into losses.
It’s been a wild ride for Carvana, which looked to be on life support until a debt exchange that bought it more than just time. And it was that debt exchange that prompted Basham to upgrade Carvana stock to Neutral from Underperform. He notes that the debt exchange should give Carvana “at least two years of breathing room to execute,” while the company’s profitability has been getting better, which could lead to higher-than-expected earnings in the third and fourth quarters.
So why didn’t Basham upgrade the stock all the way to Outperform? Part of the problem is that the company expects gross profit per unit, or GPU, to improve by $600 to $1,100 versus 2021, which seems too high to the analyst, while earnings before interest, taxes, depreciation, and amortization, or Ebitda, to come under pressure in 2024, when Carvana should turn its focus back to growth.
With Basham’s defection, 21.7% of analysts covering Carvana rate the stock the equivalent of a Sell, according to FactSet, while 69.6% rate it the equivalent of Neutral, and just 8.7% rate it the equivalent of Buy.
We don’t need such fundamentals to make us a little cautious about Carvana stock here. After all, the shares have gained 1,001% in 2023. That’s not necessarily extreme given that Carvana stock peaked at $370.10 in August 2021 before falling 99% to $3.72 in December 2022. But it does imply that some digestion may need to happen as the company continues its turnaround.
Carvana stock popped at the open—it was up as much as 5.6% in early trading Monday—but has since declined 2.8%. Part of that may be that Carvana made a failed attempt at a breakout—it’s been unable to breach $58, where it peaked in August 2022. Or maybe the upgrade was just too late for a stock that has gained so much.
Write to Ben Levisohn at ben.levisohn@barrons.com