Shares of Carvana may have reached their peak and their path ahead looks uncertain, according to analyst Mitch Ingles from Raymond James. In a note published on Friday, Ingles highlights that all the “good news seems already reflected in the stock price,” while the near-term growth for Carvana is threatened by consumers’ inability to afford cars due to high interest rates. As a result, Ingles downgraded his rating on Carvana shares to Underperform from Market Perform.
Ingles believes that investors will likely adopt a “wait-and-see” approach, looking for clear indicators of improved sales growth. Previously, Carvana’s shares had experienced significant gains, soaring 1,017% last year and another 8.8% this year. These gains were partially driven by Carvana’s successful debt restructuring and operational improvements, such as cost reductions at inspection centers and insourcing services.
In August, approximately 40% of Carvana’s available shares were held by short sellers. However, this percentage has since decreased to around 36%. Many of these short sellers rushed to close their positions after positive updates from the company, leading to a short squeeze that amplified the gains.
Raymond James’ rate cut comes less than a week before Carvana is expected to release its fourth-quarter earnings on Feb. 22. Carvana has been experiencing a decline in year-over-year sales growth since the third quarter of 2022.
On Friday, Carvana stock experienced a 5.9% decline, closing at $54.25.
