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Can Carvana Stock Continue to Outperform?

Carvana (CVNA) is well positioned to benefit from rising used-car sales because Americans are expected to remain reluctant to commute by public transport amid the still-rising spread of the coronavirus pandemic. Moreover, increasing market demand for buying and selling cars online specifically bodes well for this online used car retailer. Let's take a closer look at some of its particulars.

Carvana, Co. (CVNA) is an online used car retailer that offers a platform that facilitates the buying and selling of used cars in the United States. The company’s ecommerce platform allows customers to research and identify a vehicle using its 360-degree vehicle imaging technology, and to schedule vehicle delivery or pick-up from their desktop or mobile devices.

The transition from traditional in-person to online car buying and selling has the potential to significantly drive demand for digital auto retailers. Furthermore, as most people are avoiding public transportation or ride-hailing services amid rising COVID-19 infections, demand for personal vehicles will likely be bolstered, thereby providing CVNA with a strong growth opportunity.

CVNA’s diverse retail offering and continued investments have helped it gain 183.5% over the past year. This impressive performance combined with several other factors has helped CVNA earn a “Buy” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates CVNA:

Trade Grade: A

CVNA is currently trading above its 50-day and 200-day moving averages of $226.74 and $155.12, respectively. This indicates that the stock is in an uptrend. Also, the stock has gained 23.5% over the past three months, reflecting solid short-term bullishness.

CVNA’s revenue has increased by 41% year-over-year to $1.54 billion in the third quarter ended September 30, 2020. Its gross profit increased 90% from the year-ago value to $261 million over this period. This increase is primarily due to its increase in wholesale and retail vehicle sales. The company recently introduced “as-soon-as next-day” vehicle delivery in Pine Bluff, which allows customers to shop more than 20,000 vehicles on Carvana.com or trade their current vehicle to CVNA using this new delivery schedule. This launch should help the company to expand throughout the state by offering ease, convenience, and transparency in delivery to its customers.

On November 18t, CVNA opened its flagship Car Vending Machine in Atlanta. It also recently opened its 26th vending machine near Detroit, Michigan. This innovative sales approach should help the company to remove traditional dealership infrastructure and replace it with technology and exceptional customer service and, thereby, stand out in the market.

Buy & Hold Grade: B

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, CVNA is well positioned. The stock is currently trading just 7.8% below its 52-week high of $292.76, which it hit on December 23.

The company’s net revenue has grown at a CAGR of 90.8% over the past three years. This can be attributed to the company's strong growth in vehicles purchased directly from customers and rising demand for buying and selling cars online.

Peer Grade: B

CVNA is currently ranked #20 of 61 stocks in the Internet industry. Other popular stocks in this industry are Anaplan, Inc. (PLAN), eBay, Inc. (EBAY) and Expedia Group, Inc. (EXPE)

EXPE, PLAN, and EBAY gained 17.1%, 38.6%, and 41.2%, respectively, over the past year. This compares to CVNA’s 183.5% returns over this period.

Industry Rank: A

The Internet industry is ranked #15 of the 123 StockNews.com industries. The companies in this industry focus on numerous online business sectors, including ecommerce car sales, content, auction exchanges, and advertising sales.

The COVID-19 pandemic has accelerated the shift toward digital connectivity and triggered changes in peoples’ buying and selling behaviors that are likely to have lasting effects on the industry.

Overall POWR Rating: B (Buy)

CVNA is rated “Buy” due to its impressive financials, short- and long-term bullishness, solid price momentum, and underlying industry strength, as determined by the four components of our overall POWR Rating.

Bottom Line

CVNA is well-positioned to gain despite climbing 183.5% over the past year, owing to its broad retail offering, expanding vehicle selection, faster delivery, and rising brand awareness. As digital auto retailers continue to benefit from an uptick in online purchases and sales of used vehicles, the company is poised to extend its rally and outperform in the coming months.

The consensus EPS estimate for the current quarter ending December 31, 2020 indicates a 39.2% improvement year-over-year. The consensus revenue estimate of $1.59 billion for the current quarter represents a 44.1% increase versus the same period last year.

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CVNA shares were trading at $274.51 per share on Thursday afternoon, up $4.51 (+1.67%). Year-to-date, CVNA has gained 198.22%, versus a 16.45% rise in the benchmark S&P 500 index during the same period.



About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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