Shares of the used car e-retailer Carvana CVNA are having a terrific run on the bourses. The stock has rocketed 383% so far in 2024, having outperformed all its retail/wholesale peers. In comparison, the auto sector and the S&P 500 have gained 10.2% and 27.7%, respectively, year to date.
YTD Price Performance
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Carvana’s pivot from its aggressive growth focus toward operational efficiency and cash flow has been paying off. It posted impressive results in the first three quarters of 2024, beating bottom-line estimates in each quarter.
The company’s three-step plan—including achieving positive adjusted EBITDA, boosting EBITDA per unit and returning to growth but with a leaner operating model— has been crucial to Carvana’s financial turnaround, restoring investor confidence and driving its meteoric stock rebound.
CVNA stock has been trading above its 50- and 200-day moving average, indicating a bullish trend. It carries a Momentum Score of B and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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Even after Carvana's remarkable stock surge in 2024, we think there is much upside potential left, given the company’s solid prospects.
Why CVNA’s Rally Has Legs
Growing Retail Sales: Carvana’s retail sales volumes have been growing. It sold more than 100,000 cars in each of the last two reported quarters. Retail units sold increased 34% year over year in the third quarter of 2023 and CVNA expects a sequential improvement in the year- over-year growth rate in retail units sold in the fourth quarter of 2024.
Substantial Market Potential: Despite being the second-largest used car retailer in the country, only after CarMax KMX, Carvana still holds only a 1% share of the highly fragmented U.S. automotive retail market. So, there is ample room for the company to expand, especially as more consumers shift toward online car buying.
Improving Profit Margins: Several initiatives, including proprietary software development, logistics optimization and the in-sourcing of third-party services, helped the company reduce costs and improve profitability.Carvana has managed to reduce retail reconditioning and inbound transport costs as a result of fundamental improvements. In addition to lower reconditioning and transportation costs, expanded customer sourcing and additional revenue streams from value-added services are also driving retail GPU gains. Its retail GPU rose 24.8% in the last reported quarter. It also generated a record-adjusted EBITDA margin of 11.7% in the third quarter of 2024.
ADESA Acquisition: The acquisition of ADESA's U.S. operations has solidified Carvana’s logistics network, auction capabilities and reconditioning operations. By leveraging ADESA's existing infrastructure and resources, Carvana can scale its refurbishment processes, enhancing the quality and quantity of vehicles prepared for resale. It is expected to unlock approximately 3 million units of incremental annual reconditioning capacity at full utilization versus 1.3 million units currently.
What Do Carvana’s Estimates Say?
The Zacks Consensus Estimate for CVNA’s 2024 sales and EPS calls for a year-over-year uptick of 25% and 55%, respectively. The consensus mark for CVNA’s 2025 sales and EPS implies a year-over-year improvement of 20% and 130%, respectively. Its EPS estimates have been witnessing upward trend.
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Last Word
Carvana's stock price journey is nothing short of remarkable. From trading under $5 at the end of 2022 to a staggering $255 per share currently, it has been a mind-boggling turnaround, underscoring the company’s ability to adapt and thrive. With its focus on optimizing operations, scaling its platform, and leveraging a unique business model, Carvana continues to captivate investors. Its operational discipline and market potential hint that this is going to be an even more compelling growth story going into 2025.
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