Key points:
- CVNA shares have tumbled since pandemic peaks
- US auto sales are waning and vehicle prices are increasing
- Buyers should look to Carvana’s upcoming Q1 report with caution
The Carvana (NYSE: CVNA) story is one aligned with so many other short-lived surges that were indicative of pandemic investment trends. As investors sought to clinch opportunities in suddenly-thriving sectors, companies like Carvana, Peloton, Etsy and more suddenly became hot stocks, mirroring drastically changing patterns of consumer spending. When it came to vehicles, semiconductor shortages and supply chain tightening meant that consumers looked to Carvana to spend their newly-acquired lockdown savings.
However, the story ended much like the rest. As 2021 tailed off, so did interest in CVNA ; sending the once sky-high shares tumbling as investors questioned future growth in comparison to the unorthodox spending trends of 2020. Unfortunately for Carvana, their are wider factors at play that outweigh the post-pandemic sales dip.
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Primarily, US auto sales are waning and prices of vehicles are increasing due to supply chain restrictions. Carvana needs cars to generate its revenue, hence an overall market muddiness doesn’t bode well for the company. Secondly, a move from increased consumer spending to a tighter inflation-led environment means that the sky-high price tag of CVNA shares will more than likely remain a flicker of the past.
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Looking towards Carvana’s upcoming Q1 report; I can’t say I’m filled with optimism. There are simply too many headwinds for Carvana to overcome in order to post financials reflective of promising growth. Although we’ve seen a slight uptick in the share price in the last few days; the dip in auto sales, consumer spending and strong selling pressure don’t add up to a buy. With Carmax also reporting weaker earnings recently, the company seems a little exposed. Analysts are expecting revenue to fall to $3.3B from $3.75 in Q4, with an expected loss per share of $1.53.