Don’t Buy Carvana Just Yet.

OVERVIEW

Carvana Company operates an e-commerce platform that specializes in selling vehicles. The company buys and sells vehicles to consumers on its website. Consumers can research, take a tour, do the paperwork for the vehicle, and schedule a vehicle pickup. The company was based in the United States and was founded in 2012.

Why You Should?

  1. The COVID-19 Pandemic has caused a spike in the demand for Carvana’s e-commerce website to buy and sell cars. Carvana offered its consumers contact-less drop offs and pick ups for their vehicles. Consumers could also use the website's tools to take a closer look at the vehicle without having to go to a dealership.
  2. The COVID-19 Pandemic has also boosted the need for individual vehicles in the United States. This is because consumers do not want to take public transit or use a ride-sharing app due to possible exposure to the virus. Buying a cheap car through Carvana is a great way to get around during these tough times.
  3. At its core, Carvana is an e-commerce website that specializes in selling and buying cars. There is a lot of future growth and opportunities for this company if they can capitalize on it. For example, they can start buying and selling brand new cars on their website instead of relying on consumers to place cars up for sale.
  4. Carvana has seen rising revenues over the past couple of financial years due to the reasons mentioned above. This helps them build a stronger balance sheet which will help them speed up future growth in the business of buying and selling cars. In the financial year of 2019, the company had revenues of around 3.94 billion, significantly higher than what the company reported in the financial year of 2018 at around 1.96 billion.

Why You Should Not?

  1. Carvana faces tough competition in the business of buying and selling cars unless they change their business model. Other auto manufacturers have their own website to buy and sell used cars. There are also other companies like CarMax and Penske Auto that offer similar services to the ones that Carvana offers.
  2. Carvana stock currently sits on top of a mountain, trading at over 200 dollars a stock. This company is vastly overvalued and will fall in the future. This means that the company will have volatile trading sessions in the future and does not have much upside left. This might hurt investors in the future.
  3. Though Carvana has seen rising revenues, they have not properly capitalized it to see rising profits as well. The company has never reported a profit in its history. This might hurt the company in the future as it will prevent it from taking on more money to grow. In the financial year of 2019, the company reported a loss of around 114.7 million, much higher than what the company reported in the previous year at around 55.5 million.

MY OPINION

In my opinion, I think that investors should hold off on investing in Carvana due to high valuation, competition, and the fact that the company has never turned a profit in its history. However, a pandemic which has boosted the demand for used cars sold online has benefited the company’s financial results. Though the company may have long-term growth, I would wait for the stock price to fall before investing.

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Aaditya Patel

Aaditya Patel

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Aaditya Patel is a writer who publishes analysis on companies publicly traded on the NYSE. Follow him @the_investing787 on Instagram for summary posts.