It’s not often that you see a company outline a “poison pill” strategy, but struggling used car platform Carvana (NYSE:CVNA) did just that. On Wall Street, a poison pill is when a company increases its share count in order to prevent major shareholders from acquiring a significant stake. Usually, this is done to prevent activist investors from gaining too much influence. However, Carvana has adopted this strategy to preserve its net operating loss carryforwards.
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In other words, if Carvana ever becomes profitable, it can use its past losses to pay fewer taxes. It’s important to note, though, that this benefit would be reduced if major shareholders with a 5% or more stake increased their ownership by 50% or more over a rolling three-year period. As a result, the poison pill, which the company calls the Tax Asset Preservation Plan, will be triggered if shareholders with a 4.9% or larger stake in Carvana acquire additional shares.
Overall, Wall Street analysts have a consensus price target of $9.86 on CVNA stock, implying 33.24% upside potential, as indicated by the graphic above.