Online used car retailer Carvana Co. (NYSE:CVNA) hit a fresh 52-week low of $14.55 yesterday after concerns about the auto sector’s dismal third-quarter performance increased. A slew of negative news is dragging down stocks in the used auto sector lately. CVNA stock has lost a whopping 93.7% so far this year.
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Carvana’s Micro and Macro Problems Accelerate
Just last week, the Consumer Price Index (CPI) numbers showed that there was a continued drop in used auto prices. In September, used car and truck prices declined 4.2% from August, on an unadjusted basis. Also, there is a steep decline in the demand for used cars owing to the tough macroeconomic headwinds.
Furthermore, Ally Financial (NYSE:ALLY), a vehicle finance provider and one of Carvana’s largest creditors, reported worse-than-expected third-quarter results yesterday. To make things worse, Ally reported a decline in auto loan applications and consumer auto originations, adding to the already bleak outlook for the auto sector.
Moreover, Carvana has been facing a series of legal battles for failure to register the sold vehicles in the owner’s name in a timely manner. Owing to this, certain states have even temporarily suspended Carvana’s license to operate or put it under regulatory oversight.
Also, the company is already facing liquidity issues, a mounting debt burden, and widening expenses, all of which stand to hamper Carvana’s performance in the near term.
Analysts Predict Doom and Gloom for Carvana
Yesterday, Wells Fargo analyst Zachary Fadem cut the price target on CVNA stock to $30 (100% upside potential) from $35 while maintaining a Hold rating.
Fadem predicts a deceleration in unit sales for Q3, coupled with a tough macroeconomic backdrop and liquidity issues. Based on these near-term challenges, Fadem sees further deterioration in CVNA stock.
Similarly, on October 18, Wedbush analyst Seth Basham slashed the price target on CVNA to $15 (almost fairly traded) from $50. The analyst also downgraded the stock to a Hold rating from Buy.
Basham’s pessimism stems from the deteriorating market conditions, Carvana’s rapid cash burn, and ballooned cost structure. Also, the analyst believes that Carvana’s recent purchase of Adesa adds to its already overwhelming cost burden.
Is Carvana a Buy or Sell Stock?
Owing to the near-term challenges surmounting the used car sector, analysts have a mixed outlook on CVNA stock’s trajectory. On TipRanks, Carvana stock has a Moderate Buy consensus rating based on eight Buys, ten Holds, and one Sell. The average Carvana price target of $49.63 implies an impressive 231.1% upside potential to current levels.
Ending Thoughts
Carvana remains under tremendous pressure to perform in its upcoming third-quarter results, scheduled for November 3. An unexpected earnings beat will help the company regain confidence in both analysts and investors. Notably, the TipRanks Website Traffic tool shows that in Q3, the total estimated visits to carvana.com fell 9.54% year-over-year. Nonetheless, CVNA’s year-to-date global website visits have grown 60.33% compared to the same period last year.
