Carvana Co (CVNA, Financial) has experienced a significant daily gain of 15.96%, yet over the past three months, it has seen a decline of 19.18%. This volatility raises questions about the stock's valuation, particularly in light of its Loss Per Share of 6.07. Investors are keen to understand: is Carvana Co fairly valued at its current market price? The following analysis delves into Carvana Co's valuation, offering insights into whether its stock reflects its intrinsic value.
Company Introduction
Carvana Co is a pioneering e-commerce platform in the used car industry, revolutionizing the way vehicles are bought and sold. With an innovative business model, Carvana Co has built a substantial revenue stream from used vehicle sales, complemented by wholesale vehicle sales and other related services. The company's financial ecosystem is bolstered by loan origination, vehicle service contracts (VSCs), auto insurance, and GAP waiver coverage, with retail vehicle sales at its core. As Carvana Co navigates the market with a current stock price of $33.21 and a Fair Value (GF Value) of $32.84, it stands as a compelling case study for value assessment.
Summarize GF Value
The GF Value is a unique metric that determines the intrinsic value of a stock, incorporating historical trading multiples, a GuruFocus adjustment factor, and future business performance projections. This valuation tool suggests that Carvana Co (CVNA, Financial) is currently trading at a price that aligns closely with its fair value, indicating that the stock may be fairly priced. With a market cap of $3.80 billion, Carvana Co's stock price appears to be in equilibrium with its intrinsic value, suggesting that its future return could mirror the company's business growth trajectory.
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Financial Strength
Assessing a company's financial strength is crucial in mitigating the risk of permanent capital loss. Key indicators such as the cash-to-debt ratio and interest coverage can provide insights into the financial robustness of a company. Unfortunately, Carvana Co's cash-to-debt ratio of 0.09 places it in a precarious position compared to its industry peers, signaling potential concerns about its ability to manage debt. With an overall financial strength rating of 3 out of 10, Carvana Co's financial health warrants careful scrutiny by investors.
Profitability and Growth
Long-term profitability is a key indicator of a company's investment potential. Carvana Co's track record of profitability is less than ideal, with no profits reported over the past decade. The company's operating margin of -4.24% is also concerning, as it falls behind 86.33% of its competitors in the Vehicles & Parts industry. This profitability rank of 3 out of 10 highlights Carvana Co's challenges in maintaining financial performance.
When evaluating a company's growth, it's important to consider its revenue and EBITDA trends. Carvana Co's average annual revenue growth of 17.1% outperforms the majority of its industry counterparts, yet its 3-year average EBITDA growth of -60.1% raises red flags about its growth sustainability.
ROIC vs WACC
The comparison between Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) is a vital measure of profitability and value creation. Carvana Co's ROIC of -6.72% is significantly lower than its WACC of 12.71%, indicating that the company is not generating sufficient returns on its investments, thereby eroding shareholder value.
Conclusion
In conclusion, Carvana Co (CVNA, Financial) appears to be fairly valued according to the GF Value. However, the company faces significant financial challenges, with poor financial condition and profitability. Its growth prospects also lag behind many competitors within the Vehicles & Parts industry. Investors interested in Carvana Co should perform a thorough review of the company's 30-Year Financials to make an informed decision.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
