In a surprising twist, sometimes selling less can actually result in earning more, as proven by Carvana, the renowned online used car retailer. Following the release of their latest earnings report, the company experienced a significant jump in stock price on Friday.
Impressive Financial Performance
Carvana showcased remarkable financial figures, with adjusted EBITDA reaching $60 million from sales totaling $2.4 billion. This exceeded Wall Street’s expectations, which anticipated adjusted EBITDA of approximately $58 million alongside sales of $2.6 billion. A stark contrast to the previous year’s loss of $291 million in EBITDA from $2.7 billion in sales.
Anticipated Growth
Despite a 13% decline in vehicle sales year over year in the fourth quarter, Carvana remains optimistic about their future prospects. They aim to surpass the number of units sold in 2023 during 2024 and project adjusted EBITDA to soar “significantly above” $100 million in the first quarter of that year – surpassing initial estimates of around $108 million.
Market Response
Upon the release of this positive news, Carvana’s stock surged by an impressive 33%, reaching $69.64. This spike sharply contrasts with the relatively stagnant S&P 500 and slight dip in the Nasdaq Composite. Over the past 12 months, Carvana shares have seen a remarkable rise of about 420%, despite lingering approximately 85% below previous highs from the summer of 2021.
Carvana’s Strong Performance in 2023
In the year 2023, Carvana experienced remarkable success, with a deliberate focus on efficiency and profitability leading to significant business improvements. According to CEO Ernie Garcia, these efforts not only resulted in the company’s best-ever financial results but also saw a notable increase in customer satisfaction throughout the year. As a result, Carvana is now stronger than ever.
Positive Outlook and Analyst Review
Analysts are optimistic about Carvana’s future prospects, expecting growth in retail units sold to accelerate in the coming quarters while generating higher profits than initially anticipated. William Blair analyst Sharon Zackfia has raised the firm’s rating on the stock to Buy without specifying a price target.
Despite the positive outlook, Freedom Capital Markets analyst Mike Ward remains cautious, noting that Carvana is highly leveraged. He predicts that net debt, which stood at $5 billion at the end of 2023, is likely to increase in 2024 and 2025. Ward rates the shares as Sell with a $26 price target.
Analyst Recommendations and Targets
Only two analysts, accounting for 9% of those covering the stock, rate Carvana shares as Buy. This percentage is significantly lower than the average Buy-rating ratio for stocks in the S&P 500, which stands at around 55%. The average analyst price target for Carvana stock is approximately $46.
